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For the first time in 2 years, BEAC raises its interest rate to slow down the expatriation of capitals, according to the governor

For the first time in 2 years, BEAC raises its interest rate to slow down the expatriation of capitals, according to the governor
  • Comments   -   Friday, 31 March 2017 06:27

(Business in Cameroon) - At the end of the first session of the Monetary Policy Committee (CPM) for 2017, held in Yaoundé this past 22 March, the Bank of Central African States (BEAC), issuing institution for the six CEMAC countries comprising Cameroon, Congo, Gabon, Equatorial Guinea, the Central African Republic and Chad, decided to raise by 50 points its main key interest rate. This rate moves from 2.45 to 2.95%, thus returning to its level before 9 July 2015, date on which it dropped for the last time.

This decision from BEAC is in line with the projections of the consultancy firm BMI Research who, last month, was already announcing an increase in BEAC’s key interest rate by 55 points. However, while BMI Research justified this probable rise with the necessity of curbing inflation in the CEMAC zone, the Governor of BEAC, Abbas Mahamat Tolli, justified the decision taken on 22 Mars by the desire to limit expatriation of capital outside the CEMAC zone, currently facing great treasury challenges following the drop in international oil prices, the main export product in five of the six countries in this community.

“For over two years now, BEAC has adopted easing policies, particularly with the rise in maximum refinancing ceilings and continuous lowering of the key interest rate. Lately, CPM lowered the ratio of legal reserve requirements for banks, to afford them more room for maneuver and participate in funding our economies. Today, the situation is not the same”, explained the Governor of BEAC at the end of the last CPM.

And he specified: “Generally, when you have policies of easing which enable the injection of liquidity in the economy, what happens most often times is that this money goes abroad, either because it is invested (the biggest contracts are generally won by foreign companies, Ed.), either because there are a lot of imports. When you find yourself with important volumes of capital transfers leaving the CEMAC zone, foreign exchange reserves decrease, thus reducing our capacity to import goods and services. Therefore, the economic situation leads us to notice that when there is a lot of liquidity in the system, a lot also comes out of the system”.  

Aside from this ambition to restrict the expatriation of capital, Abbas Mahamat Tolli claims that this rise in the BEAC key interest rate follows the ongoing discussions between the CEMAC States and the IMF, negotiations which bode well for “external funding, which will help in reducing budget deficits and promote investments. When all this will be effective, CPM will be able to assess the economic situation and financing needs as and when. Today, we have a higher need for ensuring the integrity of our foreign exchange reserves, a coherent monetary policy, in line with public finances”, concluded the Governor of BEAC.

Brice R. Mbodiam

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