CEMAC REGION : How the Beac Succeeded in Slowing Inflation
[abelainfo.com] - Faced with rampant inflation, the Bank of Central African States (Beac) deployed a rigorous monetary policy, combining hikes in key interest rates and liquidity-draining operations. These measures appear to be bearing fruit, with a gradual slowdown of inflation in the sub-region.
In a globalized sub-regional market economy, the Central Bank of Central African States (Beac) plays a regulatory role to avoid macroeconomic imbalances. Over the past two years, it has had to face galloping inflation within the Economic and Monetary Community of Central Africa (Cemac), which includes Cameroon, Chad, the Central African Republic, Gabon, Congo and Equatorial Guinea.
To curb this inflationary surge, the Beac has implemented a series of proactive monetary measures. It first proceeded with two successive hikes in its key interest rate, raising it from 3.5 % to 4 % in March 2022, then to 4.5 % in September 2022, before stabilizing it at 5 % since March 2023.
At the same time, the central bank undertook a reform aimed at draining the excess liquidity in the Cemac banking system. The objective was to reduce the monetary component of inflation, by making liquidity more costly for credit institutions. This maneuver had the effect of limiting the access of economic agents to bank credits.
« Initially, the idea was to drain liquidity to reduce the money supply in circulation, while raising key rates to ensure price stability, » explains Beac Governor Yvon Sana Bangui.
This restrictive monetary policy has gradually borne fruit. According to Beac forecasts, inflation should decline from 5.6 % in 2023 to an average of 3.9 % by the end of 2024.
However, this monetary tightening has also weighed on the sub-region’s economic growth. This is why the Beac has decided, in recent months, to re-inject liquidity into the Cemac banking system.
The first operation, carried out on June 11, made it possible to inject 120 billion FCFA, although only 45 % of this envelope was captured by the banks. The second operation, a week later, was more successful, with banking demand reaching 292 billion FCFA, or more than 449 % of the Beac’s offering.
« The Monetary Policy Committee is currently working on developing a new strategy that will be implemented soon », announces Governor Yvon Sana Bangui.
This delicate balancing act between fighting inflation and supporting economic growth illustrates the challenges facing the Beac in managing the monetary policy of Cemac. A subtle game of tightening and easing, depending on the evolution of the sub-regional economic situation.
S.N.
