Tuesday, September 23, 2014

Morocco cuts rate 25 bps with inflation on target

    Morocco's central bank cut its key policy rate by 25 basis points to 2.75 percent in light weak non-agricultural growth, improving international reserves and inflation that is forecast to be in line with the bank's objectives.
    It is the first change in rates by the Bank of Morocco since March 2012. The bank issued the following statement:

"Rabat, September 23, 2014 
1. The Board of Bank Al-Maghrib held its quarterly meeting on Tuesday, 
2. During this meeting, the Board 
developments and inflation forecasts up to the fourth quarter of 2015.

3. The Board noted that global 
by stronger growth in the United States from 1.9 to 2.
Kingdom from 3 to 3.2 percent
In emerging economies, 
its second consecutive quarterly 
its global growth forecast for 2014 from 3.7
for 2015. In the labor market, the unemployment rate fell slightly in the United States, 
6.2 percent in June to 6.1
Commodity prices broadly trended downward
monthly rate of 4.7 percent
inflation declined in most advanced
serious risk of deflation. 
September decreased the
to 0.05 percent and that 
announced that it would 
support credit market and growth. 
its asset purchase program 
rate near zero for a considerable period of time 
these developments suggest muted 
4. Domestically, economic growth decelerated to 1.7
increase of 2.2 percent 
agricultural value added. 
economic activity would 
increase of almost 3 percent
the agricultural value added. 
unemployment reached 
Nonagricultural output gap would 
quarters, suggesting the absence of 
Maghrib held its quarterly meeting on Tuesday, September 23
he Board examined recent economic, monetary and financial 
developments and inflation forecasts up to the fourth quarter of 2015.
global economic conditions in the second quarter 2014 
growth in the United States from 1.9 to 2.5 percent as well as in 
percent, and a slowdown in the euro area from 
, growth accelerated in China and India while Brazil
its second consecutive quarterly contraction. In terms of outlook, the IMF in July 
growth forecast for 2014 from 3.7 to 3.4 percent and maintained 
n the labor market, the unemployment rate fell slightly in the United States, 
6.1 percent in July, and stabilized at 11.5 percent
broadly trended downward; particularly, the price of Brent 
percent in August to $101.9 a barrel on average
declined in most advanced economies, mainly in the euro
serious risk of deflation. Against this background, the European 
interest rate on the main refinancing operations 
that on the deposit facility from -0.10 to -0.20 percent. It also 
that it would conduct a series of targeted longer-term refinancing operations 
support credit market and growth. The U.S. Federal Reserve further reduced 
its asset purchase program by $10 billion and reiterated its commitment to keep its 
considerable period of time after the end of the program.
suggest muted external inflationary pressures in the 
economic growth decelerated to 1.7 percent in the first quarter 2014, with an 
percent in nonagricultural GDP and a decrease of 1.6
agricultural value added. Considering recent change in available sub
would expand by about 2.5 percent for the full year
percent in nonagricultural GDP and a decrease of nearly 
the agricultural value added. Labor market data for the second quarter indicate 
reached 9.3 percent, up 0.5 point from the same period of 2013.
onagricultural output gap would be negative and is expected to remain so in the 
the absence of demand-led inflationary pressures.
5. Concerning external accounts, the trade deficit in goods narrowed by 3.1 percent to end of 
August, as exports jumped by 7.1 percent owing mostly to strong growth in automotive 
sector shipments and less rapid decline in sales of phosphates and derivatives. Despite the 
32.2 percent increase in wheat purchases, imports edged up by a mere 1.8 percent because 
of respective declines by 1.4 percent and 5.6 percent in energy and capital goods purchases. 
With regard to other current account items, travel receipts improved by 3.0 percent to 40 
billion dirhams, and transfers of Moroccan expatriates stabilized at 39.5 billion. Taking 
account of these developments and revenues from grants, the current account deficit 
would shrink from 7.6 percent of GDP in 2013 to 6.7 percent in 2014. On the capital 
account side, net foreign direct investment inflows fell by 9.4 percent. Altogether, the stock 
of net international reserves stood at 175.6 billion dirhams to end of August, equivalent to 
4 months and 29 days of goods and services’ imports. It would remain at this level by the 
end of 2014. 
6. As regards public finance, fiscal deficit -excluding privatization proceeds- reached 42.5 
billion dirhams to end of August 2014, as against 42.2 billion in the same period of last 
year. Current receipts showed an increase of 3.8 percent, driven mainly by a rise of 3.4 
percent in tax revenues and 6.4 billion in grants. Investment expenditure grew by 17.3 
percent while ordinary expenses rose slightly by 0.6 percent to 159.9 billion dirhams. The 
change in the latter conceals a decrease of 19.7 percent in subsidy costs and a hike of 17.8 
percent in expenses of other goods and services and of 0.9 percent in the wage bill. Given 
these developments, the objective of a budget deficit at 4.9 percent of GDP in 2014 would 
be achieved. 
7. Monetary data for July show a slowdown in bank lending, from 4.2 percent on average in 
the second quarter to 3.9 percent in July, and an increase in the M3 aggregate of no more 
than 3.5 percent, as against 4.2 percent. The money gap is thus negative, indicating the 
absence of money-driven inflationary pressures. On the interbank market, the weighted 
average rate stabilized at 3.01 percent on average in July and August, whereas the average 
lending rate remained almost unchanged at 5.98 percent during the second quarter. The 
effective exchange rate of the dirham in the second quarter depreciated at a quarterly rate 
of 0.37 percent in nominal terms and 1.57 percent in real terms. 
8. On the property market, the real estate price index further declined at a quarterly rate of 1.3 
percent in the second quarter, after losing 0.2 percent a quarter earlier. By category, land 
and commercial property prices fell respectively by 3 percent and 3.3 percent, while 
residential property prices were down 0.1 percent compared to 0.4 percent in the previous 
9. Under these conditions, after rising 0.4 percent year on year in July, the consumer price 
index held steady in August, reflecting a deeper decline in volatile food prices from 7.1 to 
9.9 percent, which more than offset price increases by 12.8 percent in “water supply and 
sanitation” and by 6.5 percent in electricity. Over the first eight months of the year, 
inflation reached 0.3 percent and its underlying component was at 1.2 percent on average. 
The latter fell from 1.4 percent in July to 1 percent in August, owing to the slower price 
rise in tradables from 1.4 to 0.8 percent and in nontradables from 1.6 to 1 percent. 
Industrial producer prices continued to trend downward, with a further annual decline of 
2.1 percent in July after that of 1.9 percent on average in the second quarter. 
10. In light of these developments and taking into account the review of the water and 
electricity pricing system starting from August, inflation is expected at 0.7 percent in 2014, 1.6 percent on average over the next six quarters, and 1.9 percent at the end of the forecast 
horizon, with an even balance of risks. 
11. In this context, where nonagricultural growth continues to be weak, international reserves 
are improving and the central inflation forecast is consistent with the price stability 
objective, the Board decided to lower the key rate from 3 to 2.75 percent, while continuing 
to closely monitor all these developments. "



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