Morocco's central Bank maintains 3% key interest rate unchanged

Amidst a backdrop of economic uncertainties, Bank Al-Maghrib has announced its decision to maintain the key rate at 3 percent. 

This decision comes after a comprehensive discussion by the Board regarding various economic factors, including inflation, international developments, and domestic challenges.

One prominent factor discussed was the noteworthy deceleration in inflation. From a peak of 10.1 percent in February, inflation had progressively fallen to 5 percent in August. 

Government interventions, reduced external pressures, and a tightened monetary policy were cited as key contributors to this decline. 

Forecasts from Bank Al-Maghrib suggested that this trend would persist, with inflation expected to average at 6.0 percent in 2023 and further decrease to 2.6 percent in 2024.

Apart from rising prices, the Board also acknowledged a decrease in people’s expectations of future price increases in the third quarter of 2023. However, there were still worries about the fact that previous increases in the key interest rate hadn’t fully impacted both financial conditions and the actual economy.

Due to significant uncertainty, both globally and domestically, especially after the quake, the decision to keep the key interest rate at 3 percent was considered a cautious move.

Bank Al-Maghrib said that their future decisions would be influenced by data on the economic and social impacts of the quake, as well as the actions taken by different stakeholders.

Nationally, economic growth is expected to recover, reaching 2.9% in 2023 and 3.2% in 2024. Agricultural sectors will drive this growth, with a 5% increase in 2023 and 5.9% in 2024, assuming a grain production of 70 million quintals.

Non-agricultural activities will initially slow to 2.6% in 2023 and then accelerate to 3% in 2024.

On the external front, commodity trade will stabilize in 2023 before moderately recovering in 2024. 

Exports will remain stable in 2023 but are expected to grow by 5.8% in 2024, mainly due to the recovery in phosphate exports and strong automotive sector sales. 

Imports will stay at 2022 levels in 2023, with a lower energy bill and reduced purchases of semi-finished products.

Regarding the economy, loan interest rates rose by 23 basis points to 5.26% in the second half of 2023, marking a total increase of 102 basis points since the tightening of monetary policy began. 

In terms of public finances, revenue improved by 4.9% in 2023, driven by increased tax revenue. 

Total expenditures increased by 5.9%. The budget deficit is expected to slightly decrease from 5.2% of GDP in 2022 to 5.1% in 2023 and further to 4.9% in 2024.

In the global context, energy prices continued to rise due to an improved global economic outlook and supply reductions by select OPEC+ countries.

It was anticipated that Brent crude oil prices would remain at approximately $82.3 per barrel in 2023, marking a year-on-year decline of 16.8 percent, while prices for non-energy commodities showed a downward trend.

The worldwide economic forecast, even with strict monetary policies and ongoing high inflation, seemed to be not as bad as expected before.