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Credit to the economy: The cost of money will remain high in the 2nd half of 2023, as the BEAC maintains its key rates

At the close of the Monetary Policy Committee (MPC) meeting on 26 June 2023, the Bank of Central African States (BEAC) decided to keep its main key rates unchanged (tender interest rate at 5%, marginal lending rate at 6.75%, deposit facility rate at 0%; and reserve requirement ratios at 7% on demand liabilities and 4.50% on term liabilities). The aim is to reduce money creation and combat inflation in the sub-region.

(EcoFinances) – Interest rates on bank loans, considered prohibitive by most wealth creators, particularly SMEs (which are fond of medium and long-term loans) in the Cemac zone (Central African Economic and Monetary Community), will remain high during the second (2nd) half of the 2023 financial year. This is because the Bank of Central African States (BEAC) has decided to keep its main key rates unchanged, according to the communiqué issued by the Monetary Policy Committee (MPC), which met on 26 June 2023 by videoconference under the chairmanship of Abbas Mahamat Tolli, Governor of the BEAC. The central bank’s main key rates, which had been raised significantly in March 2023, will therefore remain unchanged, in order not only to reduce money creation (which is at the root of the widespread rise in prices) but also to combat inflation (which is set to reach 6.3% this year, compared with 5.6% in 2022).

Key rates to be maintained

« After analysing the risk factors weighing on monetary stability, with a comfortable external position preserving the external stability of the currency, but a still worrying situation of internal stability characterised by a persistent high level of inflation, the MPC decided to keep unchanged: the interest rate on tenders (TIAO) at 5%, the marginal lending rate at 6.75%, the deposit facility rate at 0%, as well as the reserve requirement coefficients at 7% on sight liabilities and 4.50% on term liabilities », the central bank said.

For everyone’s information, the tender interest rate (TIAO) is the BEAC’s main rate. It represents the remuneration received by the Central Bank common to the six CEMAC countries (Cameroon, Congo, Gabon, Equatorial Guinea, CAR and Chad) for providing liquidity to commercial banks.  On the other hand, the marginal lending rate is the remuneration paid to the Central Bank when it provides liquidity to commercial banks for a period not exceeding 24 hours. This is the key rate, reputed to be the highest among central banks.

Reduce money creation, fight inflation…

Maintaining these key rates at their March level means, we learn, that the BEAC wants to make it more expensive to obtain money from its branches. This in turn should lead commercial banks to maintain their rates, but will absolutely result in a high cost of bank credit granted to businesses and households, as well as difficult access to financing. This is an objective that the central bank is keen to achieve. It intends to reduce money creation in the second half of 2023, while combating the already high inflation in the Cemac zone.

This decision to make access to bank financing more difficult in the sub-region comes at a time when customer loans have recently risen significantly in several CEMAC (Central African Economic and Monetary Community) countries. This is the case, for example, in Cameroon, where loans granted to businesses, households and public administrations rose by 5% last year to FCFA 4,715 billion at 31 December 2022.

Favourable outlook

However, despite the decline in growth in the CEMAC zone, which is expected to fall from 3% in 2022 to 2.4% in 2023, a deterioration in public finances, reflected in a fall in the overall budget balance (including grants) from 2.8% of GDP in 2022 to 1.7% in 2023 after 7.7% in 2022, and persistent inflationary pressures rising to 6.6% in 2023 from 5.6% a year earlier, the BEAC explains that the outlook for external monetary stability is more favourable. With the currency’s external coverage rate expected to rise to around 80% (compared with 73.1% in December 2022), and foreign exchange reserves in terms of months of imports of goods and services set to rise to 5.1 in 2023 from 4.7 in 2022. Finally, the Central Bank expects the money supply to grow by 13.1% in 2023, while net foreign assets should continue to grow at a rate of around 20%.

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