A recent report by the London-based Capital Economics published on Monday stated, “Morocco’s improving balance of payments position and the sharp slowdown in inflation should provide Bank Al-Maghrib with the confidence to take the next step toward a fully floating dirham.”
It anticipated that the Moroccan currency “will appreciate against the euro.”
The report also mentioned that Morocco has been moving towards greater flexibility in the dirham exchange rate since receiving a $3 billion loan package from the International Monetary Fund (IMF) in 2014 while gradually setting an inflation target.
It pointed out that Bank Al-Maghrib 2018 allowed the currency to trade within a band of 2.5% above or below a reference rate published daily for a basket of currencies consisting of 60% euros and 40% dollars.
Morocco also widened the band to 5% in March 2020 but has not taken any further action since then.
Capital Economics emphasized that Morocco’s central bank has built up a strong foreign exchange reserve of $34.3 billion, which covers Morocco’s short-term external financing needs more than three times over.
The same source noted that this should strengthen Bank Al-Maghrib’s confidence in its ability to support the currency if it comes under any downward pressures.
The report anticipated that the Moroccan central bank’s next step would be to further widen the currency trading band rather than fully float the dirham.
It said that the previous widening of the band has led to the currency appreciation by 2-3% against the euro-dollar basket, and it expects the dirham to appreciate by around 3% by the end of this year.
Capital Economics stated that moving towards a more flexible dirham exchange rate would be a shift to an inflation-targeting framework. It further explained that this would provide a better price fulcrum than the exchange rate.
The report pointed out that the low inflation rate is likely to boost policymakers’ confidence in the success of this move, as Morocco’s annual inflation rate, which had jumped sharply due to the Russia-Ukraine war, decelerated sharply to 2.3% in January, its lowest level since 2021.
In a recent online conference held by IMF to present key preliminary findings following productive discussions with Moroccan authorities during the annual consultations under Article IV, Roberto Cardarelli, Head of the IMF Mission for Morocco, stated that “the current situation is favorable for the Bank Al-maghrib to resume the projects such as the gradual liberalization of the dirham.”
He noted that “floating the dirham is a complex process that requires significant technical work in partnership with the central bank, particularly regarding preparing small, medium, and very small enterprises to deal with the new changes in the exchange rate.
add your comment
Terms of publication : Not to offend the writer, people, sacred things, or attack religions or the divine self, and refrain from racist incitement and insults.