In a quest for more effective monetary policy, BEAC undertook monetary reforms in the early 1990s. These measures led, among other things, to the introduction of the money market in 1994 with two levels in mind. optimal regulation of bank liquidity, the interbank compartment and the intervention compartment of the Central Bank.
Some 20 years later, the system put in place still did not respond to the issues facing the BEAC.
To improve the effectiveness of monetary policy and the deepening of the financial system, while ensuring a permanent watch on financial stability, the BEAC undertook in 2013 a new reform of its monetary policy, covering the institutional aspects strategic, analytical and operational.
The limits of the old device mainly focused on:
– Management of bank liquidity;
– The nature of the procedures for using monetary policy instruments;
– The simultaneity of the BEAC interventions on the money market.
On the operational side, there was talk of:
– Put in place new instruments adapted to the specific needs of credit institutions;
– Abandon BEAC’s principle of double intervention on the money market;
– Restore trust between the primary banks through the pension delivered.
All of these measures ultimately aim to give more dynamism to the money market and thus restore the role of interest rates as indicators of the cost of liquidity in the area.
These reforms led to the introduction of a new operational framework for BEAC’s monetary policy in 2018. The innovations introduced focus on:
– The collateral management system (eligible asset classes and associated haircuts);
– The instruments and methods of intervention in the money market;
– Methodologies for setting intervention volumes;
– the required reserves;
– The system of data collection, analysis and animation of the money market by the Central Bank.
The reorganization of BEAC’s intervention instruments resulted in greater coherence between them and in better taking into account the various liquidity problems, notably through: (i) the modernization of the main refinancing operation, (ii) ) the introduction of fine-tuning operations, (iii) permanent facilities (loans and deposits), (iv) longer maturities (1,3,6,9 and 12 months) and, finally, (v) structural operations (temporary or firm purchases / sales of securities and issue of BEAC bonds).
As for the intervention volumes, they are henceforth determined according to the evolution of the liquidity of the banking system apprehended through its autonomous factors, the mechanism of refinancing objectives by country having been abolished.
The new monetary policy strategy now consists in piloting the interbank reference rate (7-day TIMP) around the key interest rate (TIAO) and within a corridor constituted by the Marginal Loan Facility Rate (as a rate ceiling) and the Deposit Facility Rate (as the floor rate). This approach results in weekly interventions carried out by BEAC’s main operation, to be reinforced if necessary by fine-tuning operations as additional contribution or liquidity withdrawal.
As regards the main liquidity injection operation, since June 11, 2018, when the new operational framework comes into effect, it is now done through a multi-rate call for tenders. Unlike fixed rate tenders previously practiced within the limits of national refinancing objectives, this auction technique has the advantage of encouraging credit institutions to boost the management of their cash flow.
Given that the volume proposed weekly is reviewable from one week to the next, this approach is more demanding in terms of liquidity forecasts. By making market participants more sensitive to the orientations of monetary policy, this approach should make it possible to recycle idle resources between them and contribute to the development of the interbank market.
Overall, the changes introduced in BEAC’s new operational framework for monetary policy modernize its instruments and create conditions for improving the effectiveness of its monetary policy and the development of the subregional financial sector in order to improve to serve the diversification of CEMAC economies.