West Africa’s BCEAO central bank is open to further interest rate cuts and other steps to help stimulate the economy, governor Philippe Henri Dacoury-Tabley said on Saturday.
The central bank trimmed its benchmark interest rate to 4.25 percent from 4.75 percent on June 11. But the International Monetary Fund said on Friday it had room for further cuts.
“It is not for the IMF that I cut interest rates. I cut interest rates according to the situation that we have in our countries,” he said in an interview.
“If despite everything we’ve done, the situation doesn’t improve. We will act, cut interest rates or take other measures, we’re ready to do everything to help the banking sector play its role in restarting growth.”
The central bank has also reduced reserve requirements for banks to help stimulate credit provision.
West Africa’s CFA currency zone comprises Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo.
The IMF report also said governments still had room for fiscal expansion despite a projected widening of the average budget deficit to 3.2 percent of GDP in 2009 from 2 percent in 2008, largely through a decline in tax and other receipts.
“We agree but our countries don’t have much margin for manoeuvre,” he said.
“During the food crisis, we don’t want to take budgetary measures to add to the difficulties of the population. Measures have been taken … the public finances are in difficulty.”
With many of their economies vulnerable to commodity price fluctuations and reliant on remittances from abroad, countries in West and Central Africa have been hit by the global economic crisis which has cut regional economic growth rates.
“We have been hit head on by the crisis in the developed countries. We are waiting for the rebound in commodity prices so that we have some resources to put towards stimulus,” he said.
But the central banker worried that rising oil prices could hurt the economy and lead to a general rise in prices across the the zone.
All of the nations covered by the BCEAO, some of the poorest countries on earth, share the CFA franc currency. Six more countries in central Africa also use the CFA franc, but they have their own central banks.
Both versions of the CFA are pegged at 655.957 CFA francs to the euro.
Dacoury-Tabley said the strong euro did not pose a problem for the region and there were no plans for a devaluation.
“Today our economies do not have a problem of competitivity. We are hit by the economic crisis, which hits all the countries and up until now, no country has responded to the economic crisis with a devaluation,” he said.
“It’s not even in a question and it’s not even in our interest.”
Asked whether the U.S. dollar should be replaced as the world’s main reserve currency, he said: “We need to think about the system we have had up until now. The international community needs to think about which direction it wants to take this financial reform that we all want. On all the subjects.”