Tiémoko Meyliet Koné, Governor, Central Bank of West African States (BCEAO), on regional monetary policy

The Monetary Policy Committee of the BCEAO has proceeded to analyse the recent developments at the international and regional level and has evaluated risk factors that could weigh on the medium-term outlook in terms of price stability and of economic growth in the West African Economic and Monetary Union (Union Économique et Monétaire Ouest Africaine, UEMOA).

In analysing the economic situation, the Committee has noted the persistence of morose international conditions marked by uncertainty, as well as the regional impact of the crisis in Mali and in Guinea-Bissau. However, the Committee has also taken note that internal activity was well-oriented in the fourth quarter of 2012, which buttresses growth forecasts of GDP in the Union in real terms, estimated at 5.8% in 2012.

For 2013, renewed economic activity is expected to continue with a projected real GDP growth rate of 6.5% for the year. The materialisation of these growth forecasts necessitates the maintenance of reinforced budgetary discipline, the good execution of economic and financial programmes supported by external partners, and a substantial increase in public and private investment.

Concerning consumer price variations, the Committee has observed that, since October 2012, inflation in the Union has continued on a progressive decline, with a variation in annualised terms of the harmonised consumer price index, which passed from 3.3% at the end of October 2012 to 2.8% at the end of December 2012. The index then dropped further, to 2.2% at the end of January 2013.

Medium-term inflation predictions remain in line with the objective of price stability strived for at the Union level: the inflation rate is projected at 1.5% in annualised terms during the fourth quarter of 2013. The key factors contributing to the moderation in inflation are the weakness of global demand – that attenuates the risks weighing on imported inflation – and a reduction in prices for local food products with the prospects of a satisfactory 2013/14 agricultural season.

Regarding monetary conditions, the Committee has noted a relaxation of rates on monetary markets and on public debt during the fourth quarter of 2012. As such, the average weighted rate for one-week interbank transactions dipped to 3.79%, down from 4.13% in the third quarter of 2012. Bond emissions by the Treasuries were effected at an average weighted rate of 5.21% in the fourth quarter of 2012, after 5.72% and 5.63% in the second and third quarters of the year, respectively.

Based on the Committee’s assessment of the risk balance, the decision was made to lower the base interest rates of the BCEAO by 25 basis points. In the context of moderated inflation, this decision aims to consolidate the relaxation of interest rates in order to ameliorate conditions for financing growth throughout the Union.

Thus, the minimum interest rate of submission to operations of tenders for the injection of liquidity has been lowered from 3% to 2.75%. The window interest rate on marginal loans is established at 3.75%, compared to 4% previously. This decision has been in effect since March 16, 2013. The Committee has, additionally, decided to maintain the coefficient of obligatory reserves applicable to banks unchanged at the level of 5%, which has been in effect since March 16, 2012.

The members of the Committee would like to exhort the member states of the Union to pursue the implementation of the structural reforms necessary for the consolidation and the enlargement of the productive base of the UEMOA’s economies. Furthermore, it is necessary for the member states to sustain the various efforts intended to improve the quality and quantity of basic infrastructure, which is indispensable to supporting strong and sustainable economic growth throughout the Union.