WAEMU Banks Stockpile Liquidity as Monetary Conditions Tighten

(Ecofin Agency) - • The West African Economic and Monetary Union (WAEMU) faces rising liquidity costs despite a stable official interest rate.
• Banks across the region are building up reserves to cope with uncertainty and tighter conditions.
• As monetary policy tightens, public debt yields show widening risk premiums between member states.

Banks in the West African Economic and Monetary Union (WAEMU) are taking a cautious approach, holding on to more liquidity despite official claims of monetary stability. While the Central Bank of West African States (BCEAO) has kept its main policy rate at 3.5%, the real cost of liquidity in the region is higher, hovering around 5.5%. This is the rate banks face when they need urgent liquidity, signaling an underlying tightening in the financial system.

Since December 2023, the BCEAO hasn’t changed its rates but has acknowledged a shift in the macroeconomic environment. Inflation has been kept in check, falling to 2.1% in February, and growth projections remain strong at 6.2% for 2024 and 6.5% for 2025. Commodity prices for key exports like gold, cocoa, and coffee have also risen. Yet, this economic recovery doesn’t hide the growing constraints felt by commercial banks in the region...Read more on Ecofin Agency

Source: Ecofin Agency