When BEAC is out of touch with cost of living reality.

Some commodities like palm oil have had the price doubled from 500 FCFA to 1,000 FCFA in many markets. Yet, BEAC, the Central Africa sub-regional Central Bank, says it is projecting to keep inflation at 5.2 percent by December.

How will the banks in, which a French representative sits on its board and the policy dictated by France which guarantees its parity with the Euro, do what is seemly an impossibility?

As this daily reported yesterday, BEAC has tightened access to bank loans on the pretext of countering the effects of inflation. The Central Bank has limited the circulation of money within the sub region by increasing interest on loans.

Independent bankers argue that the decision, copying from the EU Central Bank with an industralised economic environment different from an import-oriented and developing sub-region with weak industrial infrastructure, is merely "a follow-through choice than an appropriate solution to the inflationary challenges faced by CEMAC countries".

BEAC has raised its key rates that influence commercial banks’ ability to grant loans.

For instance, its main refinancing rate was increased from 4% to 4.5%. Its marginal lending facility rate -for less than 24-hours bank loans- was raised from 6.25% to 6.75%. Expert observers disclosed that this is the second consecutive rate hike in the region in recent times.

Apart from the inflation, BEAC is also concerned that the money supply would not pressure their foreign exchange reserves.

Typically, Central Banks have the mandate to keep prices stable and when inflation or cost of living is sky-rocketing, the increase interest rates and other policies are put in place.

In the case of BEAC, whose monetary policy is influenced by France, according to Ecofin Agency, an African economic information think tank, the BEAC decision is counterproductive.

"BEAC starts from the assumption -which has remained unchanged for decades- that with inflation (rising market prices) more money is needed to pay various bills and buy products, so more local currency will be needed in the economy but not enough backup funds available in the foreign reserves. In short, there will be more money supply than covered by the foreign exchange reserves,” Ecofin Agency said.

"This logic, which was inherited from the monetary cooperation agreements with France (and the Eurozone by proxy), no longer holds in light of current developments. As is the case in many African countries, inflation is not the result of greater currency circulation," it added.

High cost of living in many CEMAC countries, especially in Cameroon, is caused by exogenous factors such as the consequences of the COVID-19 pandemic, internal insecurity and the Russia-Ukraine war, which quickly led to a rise in global energy prices and a decline in the number of commodities available globally with cereals and fertiliser shortages.

In that light, limiting commercial banks’ ability to inject money into economies is counterproductive, as there is currently a compelling need to finance investments in productive infrastructure, which will help CEMAC become less dependent on external markets.

BEAC Governor, Abbas Mahamat Tolli, has been quoted as telling reporters that with the rising inflation, his institution had to react and use “the only tool” it has. Alas, this decision will not be any more effective than previous monetary policy decisions.

In the CEMAC region, inflation is mainly driven by energy and food products, particularly cereals that are used for beer and bakery products.

According to Ecofin Agency, BEAC should have allowed an expansion of the sub-region’s budget deficit to enable the construction of a more efficient and competitive refinery and boost agricultural production. But the central bank’s experts always claim it is not their function.

True, BEAC can obviously do nothing concerning the external factors that cause local hyperinflation. But if the Cameroon government had full control over its monetary policies, it could have been its Central Bank's duty to operate according to local realities of soaring living costs.

That once again brings to the front burner the issue of Cameroon taking its sovereignty into its hand by creating its own currency or a sub-regional one that can function in tandem with local economic sensibilities.