Economy Morocco lowers interest rate as inflation falls By Pramod Kumar June 26, 2024, 5:34 AM Alamy via Reuters Shoppers in the Marrakech souk, Morocco. Inflation has dropped partly due to lower prices of certain food products Morocco’s central bank has reduced its benchmark interest rate to 2.75 percent, down 25 basis points – the first change in almost a year – amid falling inflation. Inflation stood at 6.6 percent in 2022 and 6.1 percent in 2023 but has returned to low levels, averaging 2.1 percent over the first five months of 2024, driven by easing external pressures and lower prices of volatile food products. Bank Al-Maghrib (BAM) said inflation should remain close to this level until the end of 2025 before rising to 2.7 percent in 2025. NewsletterGet the Best of AGBI delivered straight to your inbox every week James Swanston, Middle East and North Africa economist with Capital Economics, said he expected two further 25bp cuts over the remainder of this year to 2.25 percent, based on the cautious loosening cycle being adopted by the eurozone, Morocco’s largest trading partner. “The bigger picture is that, as we have argued before, BAM is likely to be increasingly confident that it will soon be able to resume widening the dirham’s trading band and eventually shifting to a free-float,” he said. “This would likely be accompanied by a shift to an explicit inflation-targeting monetary framework.” Since Morocco secured its $3bn Precautionary and Liquidity Line from the International Monetary Fund in 2014, the authorities have been on a path towards allowing the dirham to have greater flexibility and, gradually, an inflation targeting framework. China picks Morocco for Europe’s EV battery supply Airbus to expand production in Morocco as orders grow Morocco must now tackle cost of World Cup win The country’s improving balance of payments and sharp slowdown in inflation have created favourable conditions for the transition. Morocco’s current account deficit, however, is expected to widen to 1.7 percent of GDP this year, up from 0.6 percent last year, due to higher energy imports. The country’s foreign exchange reserves will reach MD382 billion ($38.4 billion) by the end of the year, covering 5.5 months of import of goods and services. The central bank expects the fiscal deficit to remain at 4.4 percent of GDP this year but will fall to 4.1 percent next year.
