Morocco's central bank maintained its key policy rate at 2.25 percent, saying inflation is forecast to remain in line with its objective and average 1.6 percent this year and 1.2 percent in 2017 due to "the dissipation of temporary shocks on volatile food prices which would more than offset the expected increase in core inflation."
The Bank of Morocco, which cut its rate by 25 basis points in March due to a downward revision in inflation forecasts, added that foreign exchange reserves are expected to continue to increase - though at a slower rate than expected in June due to an expected decline in foreign investment - to equal imports of around 7 months and 6 days by the end of this year and 7 months and 20 days by the end of 2017.
Morocco's inflation rate was steady at 1.6 percent in August and July.
In June the central bank forecast headline inflation in 2017 of 1.0 percent.
The exchange rate of Morocco's dirham depreciated by 0.61 percent in the second quarter, mainly due to a decline in the exchange rate against the euro, the bank said, adding that the real exchange rate fell by 0.78 percent as inflation in Morocco was lower than in partner countries.
"For the full year 2016, it is expected to rise by 1.4 percent and to decline by 0.4 percent in 2017," the central bank added.
The dirham was trading at 9.72 to the U.S. dollar today, up 2.06 percent this year.
The Bank of Morocco issued the following statement:
"1. On Tuesday, September 27, the Bank Board held its third quarterly meeting of the year, during
which it discussed economic developments as well as the Bank’s macroeconomic projections for
the next eight quarters.
2. Considering that inflation forecast is consistent with the objective of price stability and in view of
recent monetary and economic developments and their medium-term expectations, the Bank
Board judged that the current level of 2.25 percent for the key rate remains appropriate and
decided to keep it unchanged.
3. The Board noted that inflation, measured by the change in the consumer price index, was down
from 1.9 percent in the second quarter to 1.6 percent on average in July and August, with a 0.2
percentage point increase in its core component to 0.7 percent. Based on the Bank’s forecasts,
inflation would average 1.6 percent in 2016 and ease to 1.2 percent in 2017, mainly due to the
dissipation of temporary shocks on volatile food prices which would more than offset the
expected increase in core inflation.
4. Internationally, second quarter data indicate continued slowdown in the euro area and the United
States. In the medium term, the economy would be particularly impacted by uncertainties
surrounding Brexit terms and some forthcoming elections. Growth forecast for the year 2016 was
revised up from 1.6 to 1.7 percent in the euro area and from 1.8 to 1.5 percent in the United
States, and that of 2017 was lowered from 1.9 to 1.8 percent and from 2.4 to 2.3 percent,
respectively. Labor market conditions continued improving in the euro area, albeit at a slow pace,
as unemployment rate is expected to remain around 10 percent in 2016 and 2017. In the United
States, this rate stabilized at 4.9 percent in August and would remain at this level in the medium
term. In the major emerging markets, second quarter data indicate further contraction of activity
in Brazil, slight deceleration in India and stabilization in China, whose growth is expected to slow
to 6.7 percent in 2016 and 6.3 percent in 2017, particularly as a result of the economic rebalancing
policy and credit risks.
5. In commodity markets, the oil price in the first eight months of the year remained, on average,
well below the level seen in the same period of 2015. In the medium term, it is expected to remain
low, as its forecast was slightly revised up to $42.4 per barrel for 2016 and down to $45.4 per
barrel for 2017. Prices of phosphates and derivatives also posted year-on-year declines, and their
forecasts were again revised downward.
6. Under these conditions, inflation remained subdued in major advanced economies. For the full
year 2016, it is expected to reach 0.2 percent in the euro area and 1.2 percent in the United States,
and to speed up gradually to 1.6 percent and 2.3 percent, respectively, in 2018.
7. In terms of monetary policy decisions, the Federal Reserve decided, in September, to maintain the
target range for the federal funds rate unchanged. It considered that the case for an increase in the
range has strengthened but decided, for the time being, to wait for further evidence of continued
progress toward its objectives regarding inflation and employment. The European Central Bank
decided, at its September meeting, to keep the policy rate unchanged and confirmed that the
monthly asset purchases of €80 billion are intended to run until the end of March 2017, or
beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation objective. Moreover, the Bank of England, after lowering its key
interest rate during its last meeting, decided in September to keep it at 0.25 percent, and to
continue implementing the measures announced in August, with the aim of further supporting
growth and ensuring a sustainable return of inflation to the target.
8. Nationally, growth slowed down to 1.7 percent in the first quarter, with a sharp contraction in the
agricultural added value and a deceleration in nonagricultural GDP. On the demand side,
household consumption slowed down and net exports contribution to growth was negative, while
investment showed a significant rebound. For the full year 2016, Bank Al-Maghrib has revised up
growth forecasts from 1.2 to 1.4 percent. Agricultural value added is projected to contract by 9
percent and nonagricultural growth would reach 2.9 percent. In 2017, the latter is expected to
accelerate to 3.2 percent and agricultural added value would rebound by 10 percent, assuming a
normal crop year, thus leading to an overall growth of 4 percent.
9. In the labor market, the domestic economy lost 26,000 jobs in the second quarter compared to
the same period of 2015, covering a contraction of 175,000 jobs in agriculture and increases of
70,000 jobs in the services sector, 41,000 in construction and 38,000 in industry, including
handicrafts. Therefore, and taking into account as well a 0.8 point drop in the participation rate,
unemployment edged down slightly by 0.1 point to 8.6 percent.
10. Regarding external accounts, the trade deficit widened by 13 percent over the first eight months
of the year, reflecting a significant increase in imports, particularly capital goods which rose by
22.5 percent. Meanwhile, despite the decline in sales of phosphates and derivatives, exports grew
by 1.7 percent, driven mostly by higher sales of the automotive sector and food industries. Travel
receipts and expatriate remittances rose by 4.5 percent 4.8 percent, respectively. Under these
circumstances and assuming an annual 8 billion dirhams inflow of grants in 2016 and 2017,
current account deficit would reach 1.9 percent of GDP by the end of 2016 and would further
ease to 1.2 percent of GDP in 2017. Taking also into account the expected decline in net FDI,
foreign exchange reserves would continue to increase, albeit at a slower rate than anticipated in
June, to stand at around 7 months and 6 days of goods and services’ imports at end-2016 and 7
months and 20 days at end-2017.
11. Turning to monetary conditions, raising the required reserve ratio from 2 to 4 percent in June
caused the alignment of the interbank rate with the key rate and the adjustment of rates in
different markets. The overall average lending rate decreased by 31 basis points in the second
quarter, following the lowering of the key rate by 25 basis points in March. In this context,
outstanding bank credit to the nonfinancial sector continued improving, growing by 3.2 percent as
at end-July, due mainly to a relative recovery of lending to businesses. Taking into account these
developments and the slight revision of nonagricultural growth, its forecast was slightly adjusted
upward by 0.3 point to 3 percent for 2016 and was kept unchanged at 4 percent for 2017. The
dirham’s nominal exchange rate depreciated at a quarterly rate of 0.61 percent in the second
quarter, mostly because of the decline in the value of the national currency against the euro.
Considering that inflation in Morocco was generally lower than in partner and competitor
countries, the real effective exchange rate fell 0.78 percent. For the full year 2016, it is expected to
rise by 1.4 percent and to decline slightly by 0.4 percent in 2017.
12. Concerning public finance, fiscal adjustment is under way. Budget execution in the first eight
months of the year resulted in a 5.2 percent expansion in overall expenses, due largely to an
increase in investment and goods and services’ expenditure whereas subsidy costs shrank by 22.1
percent to 7.5 billion, representing an execution rate of 48.5 percent compared to the Finance Act
planning. Revenues improved by 5.8 percent, particularly reflecting higher proceeds from direct
taxes, import VAT and domestic consumption taxes. Altogether, fiscal deficit almost stabilized at
30.5 billion and was financed mainly from the domestic market. It is expected to reach 3.8 percent
of GDP by the end of 2016 and 3.2 percent of GDP in 2017."
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