The Monetary Policy Committee (MPC) of the Central Bank of West African States (BCEAO) held, on Wednesday, December 2, 2020, its fourth ordinary meeting for the year 2020, by videoconference, 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.

In terms of the international environment, the Committee noted that global economic activity entered a phase of gradual recovery in the third quarter, in conjunction with the lifting of containment measures and the implementation of expansionary fiscal and monetary policies in response to the economic and health crisis. However, there are significant uncertainties in the outlook, due to the recent resurgence of coronavirus infections in many countries leading to the reinstatement of mobility restriction measures. According to the International Monetary Fund, global economic activity would experience a severe recession in 2020, with a decline in global production of 4.4%, after an increase of 2.9% in 2019.

On international markets, commodity prices recovered during the quarter under review, in line with the gradual improvement in economic activity observed during the period. According to World Bank data, energy prices recovered by 33.9% in the third quarter of 2020 after the sharp drop observed in the previous quarter. Non-energy commodity prices also rebounded, with a 7.4% increase in the third quarter of 2020, following declines of 0.9% and 4.7% respectively in the first and second quarters of 2020. This favourable stance reflects increases of 5.7% in agricultural commodity prices, 16.5% in precious metals and 19.5% in other metals and minerals.

Examining the internal situation, the Committee noted that economic activity in the WAEMU increased slightly in the third quarter of 2020, in line with the lifting of mobility restrictions and the effects of the supportive public policies put in place. The Union's GDP grew by 0.6% compared to the same period of 2019, after a decline of 2.0% a quarter earlier. For the year 2020 as a whole, the latest forecasts put the Union's GDP growth rate at 0.9% compared to 5.6% in 2019.

The implementation of national budgets over the first nine months of 2020 shows a worsening of deficits compared to the same period of the previous year, induced by the effects of the pandemic on revenues as well as by the response and recovery measures taken by States. Indeed, the budget deficit, based on commitments, including grants, amounted to 3,742.1 billion or 5.5% of GDP at the end of September 2020 against 1,576.3 billion or 2.4% of GDP a year earlier.

At the monetary level, the money supply consolidated compared to the same quarter of the previous year, with an increase of 15.5% against 13.2%. This acceleration was reflected in increases in net foreign assets (+19.3%) and domestic receivables (+11.8%). The Union's foreign exchange reserves were at a comfortable level, covering 5.6 months of imports of goods and services. It corresponds to a coverage rate of the monetary issue of 74.7% against 75.3% a quarter earlier.

On the money market, financing conditions continued to ease, in line with fixed-rate liquidity injection operations since the end of March 2020 and the effects of the decision to lower key interest rates on 24 June 2020. Thus, the weighted average rate of weekly liquidity injection operations stood at 2.00% in the third quarter of 2020 against 2.46% in the previous quarter and 3.15% a year earlier.

Turning to the inflation situation in the Union, the Committee noted that the general level of consumer prices averaged 2.9% in the third quarter, following a 1.7% increase in the previous quarter. The acceleration in the rate of increase in the general price level is mainly reflected in the rise in the price of local cereals, fishery products, fresh vegetables and tubers and plantains. This development is explained by the disruptions of distribution channels in the context of the Covid-19 pandemic, and the decline in cereal production in the 2019/2020 crop year. Core inflation rose to 1.6%, following a 1.2% increase a quarter earlier. For the whole of 2020, the inflation rate is projected at 2.2% after -0.7% in 2019. Looking ahead to eight quarters, i.e. at the end of September 2022, the forecasts place the inflation rate in the comfort zone (between 1.0% and 3.0%) defined for the implementation of the Union's monetary policy.

On the basis of these analyses, the Monetary Policy Committee decided to keep unchanged the minimum interest rate for submission to liquidity injection tender operations at 2.00% and the interest rate of the marginal lending window at 4.00%, levels in effect since June 24, 2020. The minimum reserve ratio for EU banks remains unchanged at 3.0%.

The Chairman of the Monetary Policy Committee

Tiémoko Meyliet KONE