Jouahri explains decision to increase key interest rate to 2%

Morocco’s Bank Al Maghrib (BAM) governor Abdellatif Jouahri defended his decision to raise the national key interest rate this Tuesday afternoon during a press conference, citing a rising and general inflation affecting domestic prices, as the main motive behind the long anticipated change.

The Moroccan rate rose by 50 basis points today following BAM’s trimestrial board meeting, after months of speculation that a rise is inevitable in view of the ongoing economic context.

Jouahri described raising the key rate, which now stands at 2%, as a necessary decision, in view of the accelerating of inflation and its generalization on domestic products.

“It is better to pay a small price by acting quickly on inflation through the increase in the key rate, rather than wait and see it become more widespread and lasting, as we would then be forced to take drastic measures that will have stronger impacts on both citizens and businesses,” explained Jouahri.

According to the Governor, despite this increase of 50 points, the increase in the key rate and the increase in the cost of financing that will follow will have a small impact on the economy. The impact on GDP growth will be limited to between 0.1% and 0.2% at most, according to Jouahri.

In fact, the Central Bank Council could have taken a more vigorous decision, anticpated by many, as the key rate could’ve risen upwards of about  75 basis point, which the council discussed but excluded for the time being.

The governor explained that “if we want to get back to 2% inflation in 2023, we would have had to raise the policy rate by 75 basis points. But we have not taken this decision, because we believe that there are still many internal and external uncertainties.”

The Wali was keen to point out that the role of Bank Al Maghrib is not to support the purchasing power of households or growth, but to curb inflation.

“Supporting purchasing power and growth is the job of the government, not the Central Bank. The mission of Bank Al-Maghrib is to curb inflation. We believe that the government has taken a series of measures to support purchasing power and is demonstrating a fairly consistent effort in this regard,” said the Governor.

Regarding the transmission of the decision of the national central bank the Wali stated that he is scheduled to meet with the presidents of the banks to ensure the proper transmission of the decision of the Council.

The Head of BAM noted however that “95% of credit contracts are fixed rate,” meaning that will have minimal to no affect on loan contracts that have been made under the previous key rate.

Bank Al-Maghrib expects that the remittances of the Moroccan community residing abroad (MRE) will reach about MAD 100 billion at the end of this year, after MAD 93 billion last year.

According to Bank Al-Maghrib forecasts issued today,  the remittances of the community will return next year to levels close to MAD 92.4 billion .

Remittances from the Moroccan community represent an important source of support for Morocco’s hard currency balance.

While it was approaching the lower band of fluctuation until August, the Moroccan Dirham has made a surprise jump in recent weeks, as Jouahri estimates the depreciation at 3.5% compared to the central rate .

The Wali said he met with the heads of the bank trading departments to understand the reason for this depreciation at a time when travel and MREs revenues are booming and there is no tension on liquidity.

“They told us that there are significant movements in imports, especially on energy and grain products. So, despite the contribution of the MRE and the recovery of tourism, the dirham has been pushed to depreciation,” said Jouahri.

The Central Bank will therefor intervene via currency auctions to maintain the national currency in the appropriate fluctuation interval.The conditions for an exit of the Treasury to the international are not met

Abdellatif Jouahri also said that the Treasury is still studying its planned exit from the international debt market, but he believes that this exit may not be appropriate in the current context.