Monday, February 27, 2012

Today's Major Market Move: Gambian Dalasi Weakens 10.3% Against the Dollar YTD in 2012

The Gamabia Dalasi had been pegged to the USD at a rate hovering around 27.5 up until the middle of 2011 when the currency was allowed to depreciate. Since then the currency has weakened close to 11% against the US Dollar and has weakened a little over 10% in 2012.

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The 10.3% decline in the USDGMD has made it the worst performing currency relative to the US Dollar in 2012, just ahead of the Iranian Rial at 10.1%.

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The decline appears to have been facilitated by advice given by the IMF that the Gambian currency was overvalued by 17%. Here are some more details regarding the IMF report courtesy of the Africa News:

“The macroeconomic balance approach suggests that the Dalasi may be overvalued by 17 percent. The country’s underlying current account deficit is 12 Percent of Gross Domestic Product (GDP). The underlying fundamental driving this result is the large fiscal deficits in recent years.

Temporary factors such as Government’s financial external payments for a large telecommunications project also played a role. With an estimated current account norm of about 2 percent, roughly in line with estimates in past assessments, a depreciation of 17 per cent would be needed to restore sustainability.”
Granted this report wasn't made public until February 20, 2012, however most likely the IMF had been giving their recommendations earlier than that date which would explain why the peg was loosened back in mid 2011. Furthermore, the authorities would want to take action before the recommendations were revealed publicly to prevent the 'evil' speculators from taking advantage of the situation.

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