|Central Banks in Africa Urged to Adopt Macro-Prudential Approaches|
The volatility in commodity prices and capital flows has had a negative impact on macroeconomic stability in many African countries. This was said by the Governor of the Bank of Algeria, Mr Mohammed Laksaci in his opening remarks on 29 August 2012 at the Symposium of African Central Banks, held in Algiers, Algeria.
The meeting, which was hosted by the Bank of Algeria, attracted 30 Central Bank Governors from the Africa region and more than 200 financial experts. The meeting is a platform used by central bank authorities to discuss how central banks should respond to macroeconomic issues.
In his opening remarks, the Governor said in the wake of the Eurozone crisis which has nearly crippled the financial services sector in Europe, there is need for central banks to have in place prudent macro-economic policies. The large foreign currency reserves that African central banks had accumulated prior to the global financial crisis were drawn down in order to supply foreign currency liquidity to local markets, in order to compensate for the withdrawal of foreign private capital.
He also stated that another major challenge the region is facing is falling commodity prices, which have resulted in declining terms of trade and worsening trade balances, depreciating exchange rates, and reduced government revenues and gross domestic product (GDP) growth rates for the major commodity exporters.
Governor Laksaci said during the energy and food crises in the last few years, many African countries experienced sharp increases in inflation. This he said is due to the high weight of food and energy in their consumption baskets. “This increase in inflation resulted in real exchange rate appreciation, both in countries with floating and fixed exchange regimes. Given that maintaining low and stable inflation and exchange rate stability are among the core monetary and exchange rate policy objectives of a central bank, the interventions of African central banks are necessary to prevent second round effects of higher commodity prices, including spill-over into inflation expectations and rising wages,” said Governor Laksaci.
The Governor also emphasized the need for a policy shift aimed at addressing the detrimental effects of the volatility in commodity prices and capital flows. “In Algeria, following the new provisions relating to money and credit of August 2010, monitoring and control of inflation are now emerging as main concerns,” said Governor Laksaci. He further stated that the transition at the end of this decade on inflation targeting has confirmed the steadiness of prices since inflation has consequently been reduced in the context of strengthened macroeconomic stability and real effective exchange rate. He said for Algeria exchange rate is close to its equilibrium and is supported by a flexible exchange rate regime.
Said Governor Laksaci, “The organization of this Symposium, therefore, provides you, Central Bank Governors, with an opportunity to exchange experiences and best practices on how African central banks can effectively support efforts aimed at dealing with the challenges of commodity price and capital inflow volatility. These discussions should positively contribute to the conduct of monetary and exchange rate policy in Africa.”
The next Symposium will be hosted by a central bank in East Africa and will be held in August 2013.
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