Lowering interest rates is often presented as a way to stimulate the economy. In theory, when credit becomes cheaper, businesses invest more and households consume more readily. However, this mechanism sometimes fails to work. Even with relatively low rates, investment can remain sluggish while savings continue to increase.

This is what economists call a liquidity trap. This situation arises when economic actors prefer to hold onto their money rather than use it, even if financing conditions are favorable.

A decrease in interest rates only has an effect if businesses are willing to invest and if households are ready to spend or borrow. However, when the economic environment seems uncertain, many choose instead to increase their precautionary savings.

A company that fears a drop in demand or a rise in costs may forgo expansion, even if banks are offering cheaper loans. Similarly, a household worried about its job or income may decide to limit its spending and hold onto more cash.

This situation was observed in several regions of the world after the 2008 financial crisis and during the Covid-19 pandemic. Central banks had significantly lowered their interest rates, but businesses and households remained cautious. A significant portion of the liquidity injected into the economy remained in banks or savings rather than being used to finance new projects.

In the WAEMU, the situation can take a particular form. Even when the BCEAO eases its monetary policy, banks do not always quickly pass on this decrease to the cost of credit. They sometimes prefer to bolster their cash reserves, purchase government bonds, or limit their lending to the most creditworthy borrowers.

The prevalence of informality also exacerbates this phenomenon. A large proportion of households and small businesses remain outside the traditional banking system. Even if key interest rates fall, these actors continue to rely on informal channels, rotating savings and credit associations (ROSCAs), or more expensive financing.

This reality shows that monetary policy alone cannot do everything. When confidence is low, low interest rates are not enough to revive investment. Businesses also need visibility, market access, infrastructure, and a more stable environment to be willing to take risks.