Morocco’s Central Bank Lowers Key Interest Rate Amid Economic Shifts

Morocco’s central bank reduced its benchmark interest rate by 25 bps to 2.25%, aiming to stimulate growth and job creation. Inflation is projected at 2% over the next two years, with economic growth forecasted at 3.9% for 2023. However, increased current account deficits and uncertainties in the agricultural sector could affect the economy. The fiscal deficit is expected to decline in the coming years due to rising tax revenues.

On Tuesday, Morocco’s central bank reduced its benchmark interest rate by 25 basis points (bps) to 2.25%. This marks the second consecutive cut, aimed at aligning with inflation expectations and fostering growth and job creation. The bank has been adopting a looser monetary policy since last June to support an upcoming infrastructure investment push tied to the co-hosting of the 2030 World Cup.

The bank anticipates inflation, primarily driven by food prices, to remain moderate at 2% for this year and the next. This projection comes with uncertainties stemming from geopolitical tensions and the potential effects on inflation, as well as the agricultural outcomes following a prolonged drought.

If non-agricultural activity improves, Morocco’s economy is expected to grow by 3.9% in 2023, an increase from 3.2% in the previous year. The nation is also expected to harvest approximately 3.5 million tonnes of grains this year, a slight uptick from 3.12 million tonnes last year, but still below the average.

Given the continued imbalance between imports and exports, the current account deficit is forecasted to rise to 2.9% of GDP in 2023, up from 1% in 2024. The central bank estimates that Morocco’s foreign exchange reserves will reach 391.8 billion dirhams (approximately $40.5 billion) by the end of 2025, which would cover about 5.5 months of imports.

A rise in tax revenues is expected to mitigate increased spending on investments, leading to a reduction of the fiscal deficit to 3.9% of GDP in 2025 and 3.6% in 2026, down from 4.1% last year.

Morocco’s decision to cut its benchmark interest rate seeks to nurture economic growth and stabilize inflation levels. Amidst uncertainties regarding the agricultural sector and geopolitical challenges, forecasts suggest a modest economic growth rate and gradual improvements in fiscal balances. The adjustments to interest rates and fiscal policies demonstrate the bank’s commitment to fostering economic resilience in preparation for future national projects, such as the World Cup.

Original Source: www.tradingview.com