Tuesday, March 22, 2016

Morocco cuts rate 25 bps, inflation falls, FX reserves rise

    Morocco's central bank cut its key policy rate by 25 basis points to 2.25 percent, citing a downward revision of its inflation forecast, weak non-agricultural growth, the continued reduction of the budget deficit and rising foreign exchange reserves.
    The Bank of Morocco, which had maintained its rate since cutting it by 25 basis points in December 2014, noted the downward trend in inflation in recent months and revised down its 2016 forecast to 0.5 percent from 1.6 percent forecast in December due to decelerating core inflation from slower domestic demand and low inflation in the euro area.
    In 2017 inflation is expected to rise to 1.4 percent due to higher core inflation and a rise in the prices of fuel and lubricants. This forecast doesn't reflect the removal of the sugar subsidy that has not yet been implemented. In December the central bank said the cut in sugar subsidies should add 0.27 point to inflation this year and 0.48 point in the first quarter of 2017.
   Morocco's headline inflation rate rose to 0.9 percent in February from January's 0.3 percent, the lowest point seen since 2.4 percent in July 2015. In 2015 inflation averaged 1.6 percent.
   Morocco's economy grew by an annual rate of 4.7 percent in the fourth quarter of last year, up from 4.5 percent in the third quarter, with the High Commission for Planning (BAM) estimating full year growth of 4.2 percent with non-agricultural output up by 3 percent as compared with a 14.6 percent increase in agriculture valued added due to a record cereal crop.
    For 2016 BAM is forecasting growth of 1.0 percent as agriculture output contracts by 13.8 percent, based on lower cereal output due to climate and vegetation data, and non-agricultural growth drops to 2.9 percent. In December the central bank forecast 2016 growth of 2.1 percent.
   But for 2017 Morocco's economy should accelerate and expand 3.9 percent, reflecting rises of 10.8 percent in agriculture valued added and a 3.1 percent rise in non-agricultural output.
    Morocco's current account deficit in 2015 was estimated by the central bank to have narrowed to 2.3 percent of Gross Domestic Product due to a 18.6 percent fall in the trade deficit from a 28.1 percent decline in the energy bill.
    Assuming average oil prices of $38.4 per barrel this year and $44.6 in 2017, the current account deficit is expected to ease further to 0.1 percent of GDP in 2016 and 0.3 percent in 2017, further strengthening foreign exchange reserves to import coverage of 7 months and 21 days by end-2016 and 8 months and 15 days end-2017 as compared to 6 months and 24 days in 2015.
    Data from the central bank shows that Morocco's foreign exchange reserves rose to 234.4 billion dirhams as of March 11 - or US$24.0 billion - up from 224.6 billion dirhams, or $22.7 billion, on Dec. 31, 2015.
   Data for Morocco's government shows a budget surplus in January after a deficit of 42.7 billion dirhams in 2015. Helped by low oil prices and grants from the Gulf Cooperation Council, the deficit should reach 3.7 percent of GDP in 2016 and 3.1 percent in 2017, the central bank said.




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