Africa outlook 2023

BEAC holds policy rate steady, despite still-high inflation

What’s happened?

At its March monetary policy committee meeting, the Banque des Etats de l’Afrique centrale (BEAC), the central bank of the Communauté économique et monétaire de l’Afrique centrale (CEMAC) region, kept its benchmark interest rate at 5%. We expect the BEAC to keep the rate at 5% throughout 2024, despite still-high regional inflation, as it continues to prioritise economic activity.

Why does it matter?

The BEAC prioritises maintaining the CFA franc’s peg to the euro, and its policies are largely guided by the availability of, and the trend in, foreign-exchange reserves and by the monetary stance of the European Central Bank (ECB). The ECB has raised rates by a cumulative 450 basis points, to 4.5%, since it started tightening monetary policy in July 2022. As inflation in the euro zone slows this year, we expect the ECB to start lowering its policy rate in the second half of 2024, to 3.5% at year‑end.

Inflation in the CEMAC region remains elevated—estimated by the BEAC at an average of 5.6% in 2023, far above its target of 3%—but the BEAC has been less hawkish than the ECB in attempting to strike a balance between price stability and economic activity. The BEAC has raised its main policy rate by a cumulative 175 basis points, to 5%, since it started tightening monetary policy in November 2021. As a result, the interest-rate differential with the ECB remains at historical lows, although it is still positive. This has been a major driver of the fall in the BEAC’s foreign reserves, which the central bank estimates covered 4.8 months of imports at end‑2023.

The interest-rate differential between the European Central Bank and the Banque des Etats de l'Afrique centrale is narrower than the historical average, but we expect it to widen slightly over the forecast period

The BEAC expects regional inflation to dip slightly in 2024, to an average of 5.5%. Similarly, we forecast that inflation across most member states will moderate slightly in 2024 on the back of currency appreciation against the US dollar and a dip in global commodity prices (particularly for food), although it is likely to remain above the BEAC’s target, chiefly because of high fuel prices (with subsidies cut in several countries). We expect that regional economic growth will pick up slightly in 2024, although non-oil economic activity in most member states will remain lacklustre.

What next?

We expect the BEAC to keep its main policy rate at 5% throughout 2024, despite persistently high inflation, as it continues to prioritise economic activity. Expected monetary loosening by the ECB in 2024 will widen the interest-rate differential, helping to support the BEAC’s foreign-exchange reserves.

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