Bank Al-Maghrib should continue its monetary tightening

Relevant with its key rate of +50 Pbs at 3% for the third successive time since September 2022, Bank Al-Maghrib is showing its determination to act against the persistence of inflationary tensions in Morocco, which seems to be taking on an increasingly “structural” character. This is indicated by an analysis by Attijari Global Research, which expects the continuation of this policy of monetary tightening.

Bank Al Maghrib (BAM), which raised its key rate by +50 basis points (Pbs) to 3%, for the third time in succession since September 2022, shows its determination to act against the persistence of inflationary pressures in Morocco, which would take on an increasingly “structured” character. This analysis comes fromAttijari Global Research (AGR), which expects this policy of monetary tightening to continue. “Given the economic projections, BAM should logically continue its restrictive course in 2023 in order to ensure a return of inflation towards its objective of price stability”, allowing analysts toIGA. They are adjusted, first, that the Central Bank’s decision, priced at its first quarterly meeting in 2023, to raise the policy rate to 3%, its highest since 2014, remains at a level 40 points below compared to the average observed during the 2011-2012 period, ie 3.4%.

This situation now allows BAM to have a certain leeway in terms of conducting its Monetary Policy restrictive, they note. In their analysis, AGR’s experts assert that, following the example of international experience, BAM acts on inflation through the channel of credit distribution by slowing down consumption and investment. Moreover, taking into account the institution’s economic projections for the period 2023-2024, AGR analysts come out with three main constants. preferentially, the diffusion of imported inflation towards “non-tradable” goods seems to be continuing. This is a situation that reinforces the postulate that the upward trend in prices would take on a character deemed “structured” in Morocco. “At the end of February 2023, inflation in Morocco exceeded the levels observed in the euro zone and in the United States”, notes the AGR. Admittedly, we expect a relaxation of energy prices in 2024, but inflation would stand at 3.9%, fueled by the start of the decompensation of gas scheduled for this horizon, according to BAM.

The sustainability of the dirham is crucial to avoid an amplification of inflationary pressures

Secondly, the authors of the report underline the lag registered compared to the process of raising the rates of the Federal Reserve and some ECB (European Central Bank). For AGR, this situation could lead, as in 2022, to pressure on the dirham. “For a country that is a net importer of energy products denominated mainly in dollars, the sustainability of the dirham becomes crucial in order to avoid an amplification of inflationary pressures“, they point out. Thirdly, analysts point to concerns related to the remuneration of national savings: “We note that the cumulative increase in the key rate of 150 basis points does not yet seem able to restore real rates in Morocco in territory positive”.

In addition, Attijari Global Research notes that the spread of Bank Al-Maghrib’s monetary tightening to the real sphere remains mixed. This is explained, on the one hand, by the cost of financing the Treasury, which includes the normalization of rates in Morocco with a general rise in the primary curve. “It is important to emphasize that the alignment of the secondary curve of BAM on the levels E-bond allowed the readjustment of the steepening of the primary curve in March 2023”, emphasizes AGR. On the other hand, lending rates only partially include the 100 basis point increase in the key rate in 2022. “The latter rose by only 26 basis points in the 4th quarter of 2022 to 4.5%”. For their part, loans to the economy should show a reduced increase of 4% in 2023. That said, this year, the liquidity needs of the banking system should reach a record of 87 billion DH, due to the continuous increase fiduciary circulation. For analysts, this underlying trend is fueled by a long cycle of low remuneration of national savings.


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