CDG Capital Insight forecasts a status quo of the key rate at 1.5%

The Council intervenes in a very difficult national and international context marked mainly by the rise of inflation to historically high levels of 7.7% at the end of July 2022, the expected sharp slowdown in economic growth below 1% in 2022, and the restrictive reactions of the Central Banks of developed countries in the face of inflationary waves, underlines CDG Capital Insight in its “Flash pre-Board of Bank Al-Maghrib”, made public this Tuesday, September 20.

“Indeed, since the last Bank Al-Maghrib Board meeting, held in June 2022, a race to narrow monetary policies by central banks has been recorded both in terms of liquidity injections, with a halt to several programs repurchase/refinancing, than that of the cost of financing with increases, sometimes beyond expectations, of the key rates”, explains CDG Capital Insight.

In this respect, it cites the example of the European Central Bank (ECB), which decided on 8 September to raise its key rates by 75 bps, against a rise expected by the market of 25 bps, and the halting of its asset buyback program at the end of July 2022.

For Morocco, CDG Capital points out that the framework of the national monetary policy represents a particularity compared to the world classification, in particular that of the IMF which classifies all the countries with a fixed exchange rate regime.

Advantages and disadvantages of a possible increase in the key interest rate

In this context, the bank estimates that a possible increase in the key rate, which is currently at 1.50%, will make it possible to ease financing conditions, accelerate loans and improve economic growth.

On the other hand, this risk measure, among others, could affect the improvement in bank lending rates and bond yields.

“Therefore, the formal adoption of a monetary policy framework with an explicit ultimate target of inflation requires a transition to an intermediate or flexible exchange rate regime. The exception of the Moroccan case results from the low movement of foreign capital, which has a very modest impact on the MAD exchange rate, thus giving independence to monetary policy, which remains focused on the two main objectives, in this case the medium-term inflation and supporting economic growth,” the bank said.

Consequently, continues the same source, the central bank’s monetary policy decisions should mainly impact inflation on the horizon of 8 quarters and ideally be in line with the objectives of the Government’s economic policies. Objectives which aim in this post-crisis period to relaunch growth and improve the living conditions of citizens.

Similarly, CDG Capital Insight believes that the nature of the inflationary shocks that Morocco is currently experiencing results more from a supply and imported shock rather than an increase in household demand or a shrinking of production potential.

Widening of the bank liquidity deficit

Another element raised in this Flash is the widening of the bank liquidity deficit in 3th quarter of 2022 like the two previous quarters. Thus, the weekly deficit average increased from -64.2 billion dirhams recorded in February to -94.2 billion in July 2022, i.e. an increase of 30 billion recorded in 5 months.

Under these conditions, Bank Al Maghrib increased the outstanding amount of its interventions with banks, rising to an average of approximately 107.6 billion dirhams recorded in July 2022 against 91.4 billion and 90.8 billion recorded respectively. the previous two months. Similarly, CDG Capital Insight would like to point out that since the outbreak of the covid19 crisis and in order to avoid any kind of upward slippage in the TMP (Weighted Average Rate), the central bank continues to serve all of the banks’ demand. during 7-day calls for tenders, thus recording surpluses compared to the liquidity deficit of the banking system, the amount of which approached 13 billion dirhams during the month of April 2022.

In this context, the interbank TMP, representing the operational target of monetary policy, evolved at levels almost identical to the key rate (1.5%).

Imported inflation

CDG Capital Insight also points out that inflation in Morocco, which is currently over 7%, stems from two main sources: a sharp rise in the prices of raw materials and energy at the international level, and a supply shock. on fresh food in connection, among other things, with the poor progress of the 2021-2022 agricultural campaign.

Consequently, the two components of inflation, namely food and non-food, have experienced significant increases with historically high levels of the food component of 12% and 10.6% respectively in July and June 2022 and a growth of 5% and 4.9% respectively for non-food products.

In addition, core inflation, which excludes the prices of volatile and administered products as well as fuels and lubricants, thus representing the real target of monetary policy, has recorded significant upward slippages in recent months, thus exceeding the 7% threshold, to 7.6% recorded at the end of July 2022.

CDG Capital insight would like to point out, however, that this surge in inflation, both overall and underlying, does not come from an increase in household demand or from a monetary source as evidenced by both the high unemployment rate estimated at 11.2% in 1er quarter of 2022 and the weak recovery in consumer credit of only 2.8% year-on-year at the end of July-2022 against an average of 4.8% recorded in 2018 and 5.6% in 2017.

Favorable outlook in 2023

Be that as it may, the investment bank emphasizes that the outlook is favorable for the year 2023 with a resumption of economic growth on the basis of an average agricultural season assumption of around 75 million quintals, and a return inflation at levels well below current peaks given the exceptionally high base effect.

In this context, she thinks it is more likely that the BAM Board will keep the key rate unchanged at 1.5% during this next Board meeting.


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