In an effort to combat persistent inflation that exceeds the central bank’s target range, Morocco is poised to increase interest rates for a fourth consecutive quarter.
According to a survey conducted by Attijariwafa Bank, the country’s largest lender, approximately two-thirds of major investors anticipate a 25 basis point hike in Bank Al Maghrib’s benchmark rate to 3.25% on Tuesday, Bloomberg reported.
Similarly, analysts at Bank of Africa’s BKGR predict a similar-sized increase, marking a continuation of Morocco’s tightening cycle, which will set a record since the central bank gained independence over monetary policy in 2006.
However, the expected move would be smaller than the 50-basis-point increases implemented in each of the previous three meetings.
The BKGR analysts have argued that Bank Al Maghrib should maintain its restrictive monetary policy to meet its inflation target of 5.5% in 2023. In April, inflation slightly eased to just under 8% from its previous level of over 10% when rates were last increased.
Morocco’s economy has been grappling with surging food prices, exacerbated by the country’s reliance on agriculture, which has been increasingly affected by frequent droughts.
Additionally, the conflict in Ukraine has led to higher energy costs.
While wage increase negotiations remain at a standstill, authorities have adopted a tougher stance on protests, recently prohibiting a major trade union from staging street demonstrations earlier this month.
The president of CGEM, the country’s largest business lobbying group, has called for a halt to rate increases following the most recent hike in March.
According to Abdelaaziz Ait Ali, the chief economist for the Rabat-based Policy Center for the New South, the current tightening cycle in Morocco is unprecedented, as accommodative monetary policy had been the norm until June 2022.
Ait Ali emphasized that global uncertainties and the effects of drought should not be overlooked, suggesting that Morocco’s tightening cycle could potentially last longer.
The tightening measures have begun to impact the economy, particularly the housing sector. Anis Benjelloun, a member of the property developers lobby group FNPI, highlighted that both loans and new property launches have declined by 50% compared to the previous year.
Benjelloun stated that due to higher costs, purchasing a home is no longer a top priority for the typical Moroccan citizen.
As the central bank prepares for another interest rate increase, the Moroccan economy faces a delicate balancing act between curbing inflation and minimizing adverse effects on sectors such as housing, which have already experienced significant setbacks.
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