Tuesday, March 21, 2017

Morocco holds rate, raises inflation, growth forecasts

    Morocco's central bank maintained its key monetary policy rate at 2.25 percent and raised its forecast for inflation and growth slightly this year due to improved domestic demand and a rise in imported inflation.
    The Bank of Morocco, or Bank Al-Maghrib (BAM), which cut its rate by 25 basis points a year ago in response to declining inflation, added monetary conditions tightened slightly last year due to an appreciation of the real effective exchange rate of the dirham but this should moderate from a smaller increase in the nominal exchange rate compared with trading partners.
     The pace of bank lending accelerated to growth of 3.9 percent last year from 0.3 percent in 2015 and should improve to 4.5 percent this year and 5.0 percent in 2018, the central bank said.
    Morococo's inflation rate rose to 2.1 percent in January as fuel and lubricant prices rose but in the medium term inflation is expected to remain moderate and average 1.1 percent this year before rising to 1.7 percent in 2018 as underlying inflation inflation rises to 1.5 percent and 1.9 percent, respectively.
    In its previous policy statement from December 2016, the central bank forecast 1.0 percent inflation for 2017 and 1.5 percent in 2018.
    Global growth is expected to improve, helped by a recovery in advanced economies, which will also push up inflation to above the U.S. Federal Reserve's target this year and next but below the European Central Bank's target.
     Economic growth in Morocco declined to an estimated 1.1 percent last year form 4.5 percent in 2015 due to a 10 percent contraction in agriculture value added from the worst drought in decades.
     But based on better weather conditions and an improvement in foreign demand, the central bank expects growth to rise to 4.3 percent this year as agriculture value added expands by 11.5 percent and non-agricultural Gross Domestic Product grows by 3.4 percent.
    Assuming agricultural output growth returns to 2.5 percent in 2018 and non-agricultural growth rises to 3.9 percent, overall GDP growth should decelerate to 3.8 percent next year.
    In January the International Monetary Fund forecast growth this year of 4.4 percent and growth in 2018 of 4.5 percent and while it said medium-term prospects are favorable, stronger growth will hinge on continued reforms to the labour market, access to finance, quality education, public spending efficiency and further improvements to the business environment.
    The IMF endorsed the central bank's accommodative policy stance and authorities' intention to move to a more flexible exchange rate regime and a new monetary policy framework that will help preserve the competitiveness of Morocco's and better insulate the economy against shocks.
    A draft of a new central bank law is aimed at strengthening the bank's independence and expand its role in financial stability.
    In December last year the central bank's president, Abdellatif Jouahri, was quoted as saying a planned float of the dirham was being postponed to the second half of this year from the beginning as he wanted to be sure the switch was a success and everyone was properly prepared, pointing to the sharp fall in the value of Egypt's pound following its float.
   Morocco's dirham fell sharply following the election of Donald Trump to U.S. President but since mid-December last year it has appreciated.
    Today the dirham was quoted at 9.96 to the U.S. dollar, up 1.6 percent this year.



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