Former Central Bank Governor Warns High Inflation Undermines Economic Growth

Bakary Jammeh, Former Governor, Central Bank 

By Fatou Sillah 

Bakary Jammeh, former Governor of the Central Bank of The Gambia, has emphasized that high inflation poses a serious threat to economic growth, undermining investment and creating uncertainty.

Speaking in an interview with Peter Gomez on Coffee Time, Jammeh stated, “Inflation is always a disease. High inflation undermines economic growth. A rate of 5% is manageable, but high inflation creates uncertainty, undermines investment, and in that case, it can also undermine the economy.”

Reflecting on his tenure, Jammeh recalled that inflation stood at over 9% when he assumed office but was brought down to 5% under his leadership.

“Inflation was above 9%, So we brought it down to 5%. COVID came. It did not affect inflation. When I was at the bank, we weathered the storm. The COVID issue was almost over because we acted quickly. When people were doing the first dose, that was the second dose for the Central Bank of the Gambia. When I was leaving the bank, our monetary policy rate was 10%,” he said. 

 Jammeh explained that upon taking office, the monetary policy rate was around 20%, but as inflation targets were achieved, the rate was halved.

“When I came as governor, the monetary policy rate was about 20%. But you know, when we achieve the inflation target, we reduce the interest rate up to 10%. The objective of the central bank should be clear, limited, and prioritized,” he stressed.

He cited the Central Bank Act, which outlines the institution’s primary mandate: maintaining price stability. Stating, “So if there is a crisis situation, your focus would be to maintain price stability in the country. In fact, this is what central banks are able to do best. You know, focus on inflation; ensure that inflation is low; you achieve price stability,” he said. 

Asked what enabled the Bank to reduce the policy rate, Jammeh attributed it to disciplined financial management. “One is discipline in the management of the bank. It is very important. If a central bank, if you don’t control the money supply very well, you are going to run into a price stability problem,” he said. 

He added “It is well documented all over. And this is not something that economists are debating at this point. That’s tested and too much money in the economy causes inflation. This is something which has been documented over and over, tested and proven over.” He said. 

Jammeh pointed to historical examples, such as the 1930s U.S. Federal Reserve policy of lowering reserve requirements and injecting money into the economy, which led to inflation and financial instability.

“In the 1930s, the Federal Reserve reduced reserve requirements and poured money into the economy, It caused inflation, But after some time, they did a policy reversal to implement contractionary monetary policy. That also affected the credit markets. So it caused a lot of financial problems in the country,”

During the COVID-19 pandemic, he explained, the Central Bank implemented proactive policy measures, including lowering the reserve requirement and increasing the money supply—steps made possible by stable inflation and exchange rates at the time.

“So it is well documented that too much money in the economy causes inflation. Now, during COVID, we took several policy measures, one was that we reduced the reserve requirement because the room was there,” He Said. 

He continued: “Inflation was 5%. Our exchange rate was stable, 50, 51%, very stable. So there was a massive policy room for us to maneuver. Interest rate, we dropped it to 10%. So, not only that, we increased the money supply because inflation was low, at that time, this American Rice bag of rice was 1,200 or so. And now it’s 2,250 or somewhere around that. So this was one aspect. Because stability was achieved, there was a very big policy room,” 

He noted that during his tenure, they took steps to expand policies aimed at mitigating the impact of COVID-19.

“So we were able to expand the policy to ensure that within some period, the impact of corona will also be mitigated. The other thing we did was we are making a lot of profit as a central bank. At the time, in 2019 Before COVID, we made a profit of over D500 million. And that 2020 by September, at the time I was leaving the bank, I left a profit of over D300 million, even during COVID,”he stated. 

He explained that they had a significant Dalasi reserve, which proved crucial when COVID-19 hit. At the time, the government had legacy debts owed to the Central Bank and was required to pay interest on those debts. Instead of letting the government handle the payments directly, they used the Dalasi reserves to pay on the government’s behalf.

“So we’ve freed resources in the budget. I think if I can remember close to D800 million. Money that they should have spent, pays interest on principle. We paid on their behalf. And then the other thing we did was the IMF rapid credit facility. You know, the IMF lends to central banks. So they lend us. We give the money to the government. We transferred about D1.3 billion for the government to have more resources to help our people,” He explained.