By: Kemo Kanyi
Dr Foday Joof, a renowned economist, has raised serious concerns about relying on interest rate hikes to combat inflation in The Gambia and other developing countries, calling the strategy a “gamble on aggregate demand and inflation, He said the approach is “counter-intuitive” to the structural challenges facing most African economies.
Dr Joof said policymakers are treating imported inflation with a domestic cure that does not work. “Raising interest rates in a fragile, import-dependent economy like The Gambia is like fighting a house fire with a bottle of water,” he explained.
He noted that many African central banks copy policy frameworks from advanced economies like the US and EU, where inflation is driven by demand and cyclical factors. The inflation in The Gambia is structurally driven by exchange rate, high import bills, institutional rigidities, and climate shocks, which are affecting agriculture.
Dr Joof noted that over 80% of Gambian household income is spent on food and rent, with many food items imported. Raising interest rates hurts inflation and businesses that leading to rising public debt costs and worsening poverty.
He also criticized the assumption that strong financial transmission mechanisms exist. Many developing economies have shallow capital markets, low credit access, and weak productive sectors, making interest rate hikes ineffective. Dr Joof described this policy as economic gambling. The central bank is betting that higher borrowing costs will reduce inflation, but instead stifles growth.
Dr Joof, calling for job creation, urged policymakers to resist pressure to adopt foreign monetary models without adapting them locally. He said, “Let’s understand the people, their challenges and design policies that would work