The Monetary Policy Committee (MPC) 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 the premises of the BCEAO, under the chairmanship of Mr. Tiémoko Meyliet KONE, Governor of the Central Bank, its Statutory President.

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

Examining the international situation, the Committee noted the rapid spread of the disease due to the Coronavirus or Covid-19 on a global scale and the extent of the measures taken to contain it. As a result, economic activity has been strongly affected by disruptions in production, distribution and marketing chains, as well as rising uncertainties surrounding the outlook. According to the International Monetary Fund, the growth rate of the world economy would be -3.0% in 2020 against 2.9% in 2019. This severe recession shows the extent of the impact of the Covid-19 pandemic on global economic activity.

On international markets, commodity prices, except 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, including border closures and containment measures, have severely disrupted international production chains, leading to a decline in demand for raw materials. Energy prices fell by 18.4% in the first quarter of 2020, after an increase of 1.7% in the previous quarter. Non-energy commodity prices were also down 0.7% in the first quarter of 2020, following a 1.9% increase in the previous quarter.

With regard to the internal economic situation, the Committee noted that economic activity had slowed sharply. 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 marked by the tertiary sector, whose contribution to growth has halved compared to the previous quarter, reflecting the first impacts of the spread of the pandemic, particularly in the tourism sectors, hotels, transport and commerce. For the whole of 2020, the forecasts made by the Central Bank expect an economic growth rate of the Union of 2.6% against an initial forecast of 6.6%.

The execution of budgets in WAEMU member states was strongly affected, in the first quarter of 2020, by the Covid-19 pandemic. Indeed, Governments have embarked on response plans that have resulted in lower revenues and higher expenditures leading to a worsening of the budget deficit. The budget deficit, based on commitments, including grants, would amount to 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 pace of growth of the money supply, year-on-year, in line with the rebound in net external assets and 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 on weekly liquidity injection tenders fell sharply to 2.69% from 2.98% in the previous quarter. Since April 2020, it stands at 2.50%, in connection with the liquidity injections at a fixed rate of 2.50% launched by the Central Bank to fight against the harmful effects of the health crisis.

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

Noting that the stimulus 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 the Central Bank's key rates by 50 basis points. The minimum interest rate for bidding on liquidity injection tender operations thus increases from 2.50% to 2.00% and the interest rate of the marginal loan window is reduced from 4.50% to 4.00%. This decision enters into force on 24 June 2020.

In addition, the Monetary Policy Committee noted that the situation of minimum reserve requirements by banks remains comfortable. On this basis, the Committee decided to maintain unchanged the minimum reserve ratio applicable to EU banks, which remains fixed at 3.0%.