Between August 7 and 11, 2023, BEAC, the central bank of CEMAC countries, carried out a liquidity absorption operation. The operation aimed to absorb FCFA400 billion of liquidity from the banking circuit but, FCFA300 billion was transferred by commercial banks.
By stepping up its liquidity absorption operations, which now consist in making a recovery offer of FCFA200 billion every week, BEAC intends to further tighten access to bank credit in the Cemac region. This restrictive monetary policy –suspension of liquidity injection operations, intensification of liquidity absorption operations, and multiple increments of the central bank’s key rates– aims at curbing rampant inflation, the central bank explains.
The intensification of the liquidity absorption comes as no surprise. At the second session of its Monetary Policy Committee (MPC), held on June 26, 2023, Abbas Mahamat Tolli, governor of BEAC, clearly envisaged this hypothesis, to curb inflation projected at 6.1% in 2023 (twice the tolerance threshold of 3% accepted in the Cemac), due to the international situation marked in particular by the persistence of the war between Russia and Ukraine.
Imported inflation
As Abbas Mahamat Tolli explained during the press conference that marked the CPM meeting of June 26, 2023, despite the tightening of monetary policy in recent months, interbank transactions in the Cemac zone have increased. In other words, as the conditions to get financing from the central bank were getting more restrictive, commercial banks have upped their recourse to interbank financing. This enabled them to continue to finance economic agents despite the central bank’s restrictive monetary policies.
The intensification of the liquidity absorption operations aims primarily to reduce the liquidity available in the interbank market. With that measure, the central bank hopes to impact the share (20%) of global inflation that is of monetary origin (according to Abbas Mahamat Tolli).
With Abbas Mahamat Tolli explaining that 20% of the overall inflation is from monetary origin, it becomes clear why the forecasted inflation is still way above the 3% community threshold despite the restrictive monetary policies being applied by the central bank for months now. Indeed, those measures do not influence the remaining 80% of inflation, which is not of monetary origin, but rather imported due to the sluggish international market.
FCFA 160 billion withdrawn within 48 hours
Between August 21 and 22, 2023, BEAC, the central bank of CEMAC countries, withdrew FCFA 160 billion from the banking system. According to official data, FCFA 30 billion was withdrawn on August 21, following an offer to take over FCFA 50 billion of long-dated liquidity. On August 22, it withdrew FCFA 130 billion from the system following an operation to take over FCFA 150 billion.
The central bank is thus pursuing its liquidity absorption strategy to restrict access to credit and combat inflation, which is forecasted to reach 6.1% this year (twice the community threshold of 3%).
It is worth noting that despite the central bank’s restrictive monetary policy (with repeated increases in key rates, the suspension of liquidity injections, and the intensification of liquidation absorptions) since 2021, inflationary pressures persist in the CEMAC region.
This is understandable with BEAC governor Abbas Mahamat Tolli admitting that only 20% of the inflation is of monetary origin. This means that the restrictive monetary policy implemented by the central bank can have no impact on the remaining 80% of inflation, which is imported and due to internal factors such as climate change.
Brice R. M