Morocco’s central bank may soon have its first rate hike in 14 years
The first interest rate hike in 14 years in Morocco is likely to be approaching, as concern over the highest inflation in decades threatens a drive for cheap borrowing that was meant to revive the economy.
A rising of the policy change doesn't mean a rise when Bank Al-Maghrib makes its latest quarterly decision. Two of the kingdom's major financial institutions are unsure whether the regulator will touch its benchmark rate, which has been at an all-time low of 1.5% since 2020.
The bank's most unpredictable decision is shaping up as the bank's most unpredictable decision in several years.
At question is whether a hike would have a negative impact on annual inflation that reached 8% in August and whether Moroccan authorities will risk the possible trade-off in growth for the $115 billion economy.
According to Abdelaaziz Ait Ali, head of research at the Policy Center for the New South, the rising inflation could make it more entrenched and lead to second-round effects, as well as make it more entrenched.
He said that a quarter-point rate hike by the central bank is needed to send a message that it is sticking to the main letter of its mandate, which is maintaining price stability.
The North African nation is an outlier in a world that is raising rates in response to the biggest inflation shocks in the last few years. In the first half of 2020, it adjusted rates, trimming a cumulative 75 basis point in a bid to reduce the impact of the epidemic on an economy that relies on tourism from Europe.
Credit growth was weak in 2022, which is why some people question how effective that was.
The outlook is already turning less optimistic this time. Economic expansion will slow down this year, from 7% in 2021, after drought hit the crucial agriculture sector, according to the central bank.
A hold is more than likely in a bid to maintain funding for the post-pandemic recovery and give time for mostly imported inflation, analysts at CDG Capital, Morocco's biggest pension management fund, said last week in a note.
Nearly half of 35 of the most influential investors in Morocco s financial markets expect a hike, according to Attijari Global Research, a unit of the country's biggest lender, which didn't cite the respondents reasons. That figure was compared to 37% before the last decision in June.
Injuries from central bank governor Abdellatif Jouahri said in June that he expected inflation to fall to 2% next year with a pact with unions on wage increases for low-income workers to help with rising consumer prices.
That hasn't stopped the speculation. According to Ait Ali, investors in the kingdom s dirham-denominated treasury bills are already bracing for the likelihood of higher rates ahead.
He said the cost of borrowing has been rising lately, especially for short and medium-term maturities.
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