Recent Challenges to the Conduct of Monetary Policy in the WAEMU: WAEMU

Selected Issues Papers, May 17, 2024

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Canonical URL: Recent Challenges to the Conduct of Monetary Policy in the WAEMU: WAEMU

Authors: Alain Feler, Lawrence Norton
Publication date: May 17, 2024
Summary: This paper discusses recent challenges in BCEAO monetary policy, from a recent spike in inflation, the persistent erosion of external reserves, and strains in the regional financial market. In response to these shocks, the BCEAO operated via both policy rates and liquidity management, including by shifting from fixed to variable rate auctions. The paper finds that the conduct of monetary policy became progressively more constrained by financial stability and external viability challenges, arguing for enhanced monetary-fiscal policy coordination to help the BCEAO meet its reserves objectives.

Recent spike in inflation affected the WAEMU region.
Persistent erosion of external reserves emerged as a significant challenge.
Strains were observed in the regional financial market.
The BCEAO responded using:
- Policy rates.
- Liquidity management measures.
- A shift from fixed to variable rate auctions.
The conduct of monetary policy became progressively more constrained by:
- Financial stability challenges.
- External viability challenges.
The paper argues that enhanced monetary-fiscal policy coordination is needed to help the BCEAO meet its reserves objectives.

Strengthen monetary-fiscal policy coordination to support external reserves objectives.
Balance policy rates and liquidity management while managing financial stability risks.
Use auction design (fixed versus variable rate) as a tool to respond to changing market conditions.