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Instruments of Monetary Policy Implementation

The current mechanism for the management of the currency and credit relies on market mechanisms and indirect tools to regulate liquidity, notably interest rates and the required reserve system.

The interest rate policy, which is implemented through the Central Bank’s refinancing windows, is focused on the steering of short-term interest rates on the money market. Steering of the interest rates, which is carried out through open market and refinancing transactions on the marginal lending window, enables the BCEAO to achieve its goal of price stability.

The minimum interest rate for bidding on open market transactions (calls for bidding) and the interest rate applicable on the marginal lending window (repo rate), whose levels are currently set by the Monetary Policy Committee at respectively 2.50% and 3.50%, are the principal leading interest rates of the BCEAO.

The required reserve mechanism allows the BCEAO to reduce or expand the credit distribution capacity of the banking system.

Thus, all sales financing institutions and all credit-granting banks and financial institutions authorized to receive deposits from the public are subject to a requirement to set up reserves with the Central Bank.

The required reserve mechanism is used by the BCEAO as a tool to enhance the effectiveness of the interest rate policy.