Monetary policy is determined by the regional central bank, Banque des Etats de l'Afrique centrale (BEAC), which prioritises the control of inflation and the maintenance of the CFA franc's peg to the euro. As a result, the regional central bank broadly tracks movements in the policy of the European Central Bank (ECB). However, in July 2010 the BEAC cut its main policy rate, taux des appels d'offres (the auction rate), by 25 basis points to 4%, thereby slightly narrowing the differential with ECB policy rates, which are currently at record lows. We expect the ECB to keep its rates on hold until at least mid-2012, after which we forecast a small rise in rates.

Whether or not the BEAC tightens its own policy will depend on movements in consumer price inflation and the rates of credit and money-supply growth in its member countries. As we have revised our global commodity price forecasts upwards, inflation is likely to be faster than previously expected, so a rise in the bank's policy rates before mid-2012 has become more probable. For the moment the BEAC appears to be sanguine about inflationary pressures and still plans to increase access to credit. This stance indicates that further loosening of the auction rate is possible. However, money supply in BEAC member countries increased by a rapid 11% year on year in the first half of 2010. As this trend is set to continue into 2011-12, in tandem with faster imported inflation, we expect a slight rise in policy rates, of around 50 basis points, by early 2012.