The Bank of Central African States (Beac) plans to initiate three bond issuances targeting the community’s banks between March 18 and April 1, 2024.
According to the timetable just published by Michel Dzombala, Beac’s vice-governor, these operations aim to withdraw a total of FCFA150 billion from bank vaults (FCFA 50 billion per operation), as part of the restrictive monetary policy implemented by the central bank since 2022 to combat inflation.
In detail, the bank will apply an interest rate of 3.5% for 28-day maturity bonds and 2.5% for 14-day securities. To participate in these operations, aimed at reducing bank liquidity, credit institutions are required not to seek any facilities from the central bank for the duration of the bonds’ maturity. Also, these securities will not be eligible for Beac’s refinancing operations.
Following the increase in benchmark interest rates, the cessation of liquidity injection operations, and the ramping up of weekly liquidity withdrawal activities, Beac’s bonds are the central bank’s latest strategy to drain banks and restrict credit access. The goal is to mitigate the portion of inflation that is attributed to monetary factors, currently at 20%. Beac received authorization to implement this new tool following the Monetary Policy Committee meeting on December 12, 2023, which recognized persistent inflationary pressures despite tighter monetary policy.
“We will invite the banking community holding surplus funds to submit their interest rate proposals based on the amount of liquidity we aim to extract from the system. Each bank will place their bids, and we will ultimately select a rate to eliminate the surplus liquidity found in these institutions. Our objective at Beac is to swiftly eliminate the excess liquidity from banks in the very short term and to keep a closer watch on its trends,” stated Abbas Mahamat Tolli, the former governor of Beac, in a press conference after the December 12 meeting.
Following the guidelines set by the Monetary Policy Committee, Beac launched its inaugural bond offering on February 9 with the goal of raising FCFA50 billion (about $83 million) at a 3.5% interest rate. This initial effort did not yield expected results and the Beac has now set a more ambitious goal, aiming at FCFA150 billion from the banking sector. This strategy indicates an ongoing surplus of bank liquidity in the Cemac zone, a key driver of inflation, particularly as fuel prices rise in nations like Cameroon and Chad.