The Monetary Policy Committee (CPM) of the Central Bank of West African States (BCEAO) held, on Monday, June 22, 2020, its second ordinary meeting for the year 2020, by videoconference from BCEAO premises, under the chairmanship of Mr. Tiémoko Meyliet KONE, Governor of the Central Bank, its statutory Chairman.

The Committee reviewed the main recent developments in the international and regional economic situation, as well as the risk factors that could affect the medium-term outlook for inflation and economic growth in the Union.

Reviewing the international situation, the Committee noted the rapid spread of the disease due to Coronavirus or Covid-19 on a global scale and the extent of the measures taken to contain it. Economic activity was thus strongly affected by the disruptions in the production, distribution and marketing chains, as well as by a rise in uncertainty surrounding the outlook. According to the International Monetary Fund, the growth rate of the world economy will stand at -3.0% in 2020 against 2.9% in 2019. This severe recession shows the extent of the impact of the Covid-19 pandemic. 19 on global economic activity.

On international markets, commodity prices, with the exception of gold, fell sharply during the first months of 2020, in connection with the Covid-19 health crisis. The measures taken by States around the world to limit the spread of the disease, in particular border closures and containment measures, have greatly disrupted international production chains, leading to a drop in demand for raw materials. Energy prices fell by 18.4% during the first quarter of 2020, after rising by 1.7% the previous quarter. Non-energy commodity prices also fell by 0.7% in the first quarter of 2020, after rising by 1.9% in the previous quarter.

With regard to the internal situation, the Committee noted that economic activity has experienced a sharp slowdown. The Union's GDP grew, year-on-year, by 3.3% in the first quarter of 2020, after 6.5% a quarter earlier. This deceleration in economic activity is mainly driven by the tertiary sector, whose contribution to growth fell by half compared to the previous quarter, thus reflecting the first impacts of the spread of the pandemic, particularly in the sectors of tourism, hospitality, transport and commerce. For the whole of 2020, the forecasts produced by the Central Bank are counting on an economic growth rate for the Union of 2.6% against an initial forecast of 6.6%.

Budget execution in WAEMU member states was strongly affected in the first quarter of 2020 by the Covid-19 pandemic. Indeed, the Governments have initiated response plans which have resulted in a drop in revenue and an increase in expenditure resulting in a worsening of the budget deficit. The budget deficit, on a commitment basis, including grants, would stand at 922.1 billion or 4.5% of GDP at the end of March 2020 against 222.5 billion or 1.1% of GDP in the same period of the previous year.

The monetary situation of the Union was marked, in the first quarter of 2020, by a slight acceleration in the growth rate of the money supply, year-on-year, in connection with the rebound in net foreign assets as well as the increase in domestic claims. . The Union's foreign exchange reserves strengthened on an annual basis, ensuring 6.3 months of imports of goods and services at the end of March 2020.

The average quarterly interest rate for weekly liquidity injection calls for tenders fell sharply, standing at 2.69% against 2.98% the previous quarter. Since April 2020, it has been at 2.50%, in connection with the liquidity injections at the fixed rate of 2.50% launched by the Central Bank to combat the harmful effects of the health crisis.

Addressing the situation of inflation in the Union, the Committee noted that the general level of consumer prices increased during the first quarter of 2020. The inflation rate stood at 1.2% after -0.6 % a quarter earlier. This situation is linked to the rebound in food prices. Over the next eight quarters, the inflation rate should stand at 2.2%, year-on-year, in line with the price stability objective pursued by the Central Bank.

Noting that the recovery plans put in place by the States and the gradual easing of travel restrictions should lead to a restart of the productive apparatus, the members of the CPM decided to support this dynamic, by lowering by 50 points of bases the central bank's key rates. The minimum bidding interest rate for liquidity injection tender operations is thus reduced from 2.50% to 2.00% and the interest rate for the marginal lending window is reduced from 4.50 % to 4.00%. This decision comes into force as of June 24, 2020.

Moreover, the Monetary Policy Committee noted that the situation of constitution of compulsory reserves by the banks remains comfortable. On this basis, the Committee decided to maintain unchanged the reserve requirement coefficient applicable to banks in the Union, which remains set at 3.0%.