Investors, experts expect new BAM key interest rate increase, as inflation persists

Morocco’s central bank Bank Al Maghrib (BAM) will hold its customary board meeting tomorrow, for which the output is highly anticipated by the financial and business community in the country.

The last BAM meeting saw BAM announcing it will raise the national key interest rate to mitigate and contain inflation. A further increase is not excluded. In fact, market players are expecting a new rate hike this week.

The key interest rate was set at 2% in September, a 0.5 rise in the rate the bank has kept steady since the COVID-19 outbreak in the country, in June of 2020.

In a press release, the Central Bank said the decision it made aims to manage inflation expectations and to ensure conditions for a quick return to levels consistent with the goal of price stability.

Expectations for a further spike in the key rate are prevalent, which experts say reflect a global trend.

The US Federal Reserve had set the tone, reducing the pace of its tight monetary policies, but said it now expected its main interest rate to rise above 5% next year, a higher level than previously indicated.

Similarly, the European Central Bank continued to raise its key interest rates, albeit by a modest 0.5 percentage point than at previous meetings.

The central banks of England, Switzerland and Norway also expressed their belief that price hikes are not slowing down anytime soon

Domestically, experts believe that inflation is not slowing down, which highly entails a new spike in the key interest rate.

Zaher Badr Al Azrak, a researcher and academic in business and economic law tells Hespress that “considering the ongoing if not worsening inflation, and considering foreign central banks’ decisions, BAM is likely to follow suit.”

“The initial key interest rate increase has not borne its fruit,” says Al Azrak, adding that “although the goal was to control offer and demand, the rise has had minimal effect on loan demands, weather of investment or consumption nature.”

Only implemented in late September, the rate change is not yet showing its desired effects on the Moroccan economy, “a result especially prevalent when we look at struggling sectors such as construction,” specifies the expert.
“Inflation rates are still high at this point, fuel, foods and other goods are still experiencing high prices, and the initial increase was probably not significant enough to have an immediate effect,” notes the professor.

Since the government, in its 2023 Finance Bill, forecast a 2% inflation rate for next year, BAM may see itself forced to implement a new increase to achieve this goal.

Attijari Global Research (AGR) indicated in a recent “report research strategy” that financial investors also expect an increase in the key rate for this week, which they set around 50 basis points.

“In our December survey, we surveyed investors’ expectations for the evolution of Bank Al-Maghrib’s key rate on the sidelines of its 4th and final monetary policy meeting during 2022.”

This survey was conducted with a relevant sample of 35 investors considered among the most influential of the Moroccan financial market.

“At the end of this research, it is necessary to note a consensus of financial investors in favor of an increase in the key rate of Bank Al-Maghrib of +50 bps,” says AGR in this report.

71% of investors surveyed anticipate an increase of +50 bps in the key rate in December 2022, says the survey report, basing results on the analysis of responses obtained by the three main categories of investors (local institutions, foreigners and reference actors).

AGR notes that the share of institutional investors anticipating this increase is 73%, that of foreign investors to 71% and that of reference actors to 75%.