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Covid-19 at the BCEAO: The Central Bank lowers its key rates

• Increase in the budget deficit

• And strengthening foreign exchange reserves

C’is an open secret. The Covid-19 pandemic has had an effect on budget execution in the WAEMU member states. The response measures taken by the states have led to lower revenues and higher spending. As a result, the budget deficit has widened a little more in the Union.

According to a press release by the chairman of the Monetary Policy Committee, Tiémoko Meyliet Koné, the budget deficit in the first quarter of 2020 stands at 922.1 billion FCFA, against 222.5 billion in the same period of the previous year.

10.350 billion FCFA of foreign exchange reserves

Despite this widening budget deficit, the Union’s foreign exchange reserves have strengthened. For the Monetary Policy Committee, the situation of banks’ constitution of reserve requirements remains comfortable. An assertion supported by the fact that the Union’s foreign exchange reserves have strengthened, capable of ensuring 6.3 months of imports of goods and services at the end of March 2020. A good performance when we know that according to the IMF, in the In practice, a realistic level of foreign exchange reserves must be able to cover the needs of imports of 3 months.

In the annual report of the BCEAO, published in May 2020, the Central Bank affirms that the stock of official foreign exchange reserves of the BCEAO stood at 10.357.0 billion at the end of December.

It can therefore be said that Covid-19 has enabled the BCEAO to increase its cash flow. A result which stems from the significant mobilizations of external resources by the States and from the improvement in the profile of the repatriation of export earnings. In late December 2019, the repatriation of external resources by the states stood at 4,765.0 billion.

Key rates down 0.5%

“Noting that the stimulus plans put in place by the States and the gradual relaxation of movement restrictions should lead to a restart of the productive apparatus, the members of the Monetary Policy Committee (CPM) have decided to support this dynamic , by lowering the central bank’s key rates by 50 basis points ”.

These rates are the minimum interest rate for submission to liquidity injection tender operations and the marginal loan window interest rate. The first was 2.50%, rate stopped when the measures were taken by the BCEAO, and finally to support States and businesses during Covid-19. It therefore goes from 2.50% to 2%. As for the marginal loan window interest rate, it has been reduced from 4.50% to 4%. A decision of the Committee which is in effect from June 24, 2020.The

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What will the drop in key rates be for?

Lhe central bank policy rates are tools used to influence lending and modulate inflation. The first, the minimum interest rate for submitting to liquidity injection tender operations, as its name suggests, is used during weekly refinancing operations by the BCEAO to supply banks with liquidity. The latter must, in principle, pass this rent on to the interest on the loans they grant to their own customers. Thus, the lower this rate, the lower the cost of credit is likely to be, which, in theory, promotes growth. When the BCEAO raises these key rates, on the other hand, it slows demand for liquidity and therefore prevents inflation.The

Publishing Number: 351

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