The Central Bank of Madagascar's (BCM) decision to raise its policy rate to 12.5% has sent shockwaves through the business community. Economist David Rakoto warns that this move risks slowing credit access and private investment. The rate hike contradicts the government's stated objectives of reviving the economy, encouraging investment, and facilitating financing access.
"The central bank's rate increase raises a fundamental question: how do we reconcile fighting inflation with the desire to restart economic activity?" asks Rakoto, president of Madagascar's Economic Think Tank (CREM).
While the BCM operates as an independent institution within its monetary policy mandate, a policy rate increase directly affects bank lending costs and investment decisions. In a context where the state actively encourages companies and national operators to invest more, consistency across economic policies becomes crucial.
"The problem isn't just the rate level, but how it aligns with overall economic policy," Rakoto explains. When the goal is boosting investment and easing credit access, any increase in borrowing costs must be evaluated against its effects on credit demand, investment, and the country's productive capacity.
National operators could be particularly affected. Higher credit costs may prompt some to postpone or scale back investment projects. Reduced private investment could slow growth by limiting local production and productivity development—contradicting the state's push for national investment and locally-driven growth.
The situation also conflicts with measures from the Ministry of Economy and Finance (MEF). Removing value-added tax (VAT) on bank credits aims to reduce financing costs and encourage private investment. Yet if credit costs simultaneously rise due to the policy rate hike, part of the intended benefit could be negated.
"We must look at the overall effect of measures, not each decision in isolation," emphasizes the CREM president. A measure designed to ease credit access risks losing impact if financing costs increase concurrently.
The Finance Minister, present at last week's BCM monetary policy presentation, noted that the policy rate cannot be raised indefinitely to control inflation. Price increases have multiple causes requiring multiple solutions.
"When inflation stems from production or supply problems, raising credit costs alone won't solve it," the economist argues.
Beyond the rate level itself, the real issue is consistency across economic policies. While BCM independence must be preserved, it shouldn't exclude dialogue and coordination when major decisions directly affect government recovery objectives.
"The challenge is balancing inflation control, credit access, investment, and local growth. For its recovery to succeed, the state needs all its economic policy levers moving in the same direction," Rakoto concludes.