Morocco’s Central Bank has modelled its exchange rate regime reform on a number of different benchmarks which underline the advantages of adopting a progressive system to ensure a smooth transition towards an inflation-targeting regime.
To be more precise, three countries came under the spotlight. The first, the Czech Republic, adopted an explicit inflation targeting regime, the second, Turkey, an implicit regime and the third, Macedonia, whose situation is the most similar to Morocco’s, employed a fixed exchange rate regime while proactively preparing for regime change.
In all but name…
The findings were conclusive insofar as Turkey officially announced that it had adopted a flexible exchange rate regime whereas, in reality, its central bank continued to keep a close eye on the floating Turkish lira, somewhat contradicting the choice it had made.
Macedonia, a small European country with an open economy, had employed a fixed exchange rate regime since 1996. Similar to Morocco in many ways, the country aspired to adopting an inflation-targeting regime over the coming years.
The country had decided in fact to carefully prepare for the transition. An action plan for the period 2007-2014, aimed at bolstering the Central Bank’s technical infrastructure, was adopted to tackle the challenges posed by the adoption of a more flexible exchange rate regime.
Today, the Macedonian authorities employ a managed floating exchange rate regime, resembling a fixed exchange rate pegged to the euro.
Turkey’s experience is also highly instructive for countries within the MENA region. The country had to cope with chronically high inflation for almost three decades from 1970.
In order to reduce the endemically high inflation rate, Turkey adopted, in 2002, an implicit inflation-targeting regime.
This policy helped enhance the central bank’s independence and bring down inflation. The central bank succeeded in bringing down the inflation rate from 68% in 2001 to 7.7% in 2005.
This successful transition period (2002-2005) paved the way to begin work on the institutional and technical pre-requisites needed to make the transition towards an explicit inflation-targeting regime in 2006.
However, the near-zero interest rate policies and quantitative easing measures adopted by developed economies’ central banks in the wake of the financial crisis has had significant repercussions for Turkey’s economy.
The process of monetary policy normalisation pursued by influential central banks has triggered an enormous reallocation of assets into international financial markets, increasing volatility in the Turkish currency market.
The Turkish Central Bank (CBRT) has therefore had to overcome several challenges since 2007 including massive capital inflows and rapid credit expansion, real exchange rate appreciation and increased vulnerability to sudden reversals of capital flows.
This led to the CBRT reviewing its monetary policy framework (objectives and instruments), opting for increased vigilance with regard to the price of its currency by managing the lira’s exchange rate and ensure greater financial stability.
Egypt has finally opted for a free-floating exchange regime, imposed by the IMF in consideration for a USD 12 billion loan, to enable the country to weather the crisis in the wake of the overthrow of the Islamist regime in 2013.
As a consequence of this decision, inflation has shot up to 37%, resulting in a sharp devaluation of the Egyptian pound. However, with stability returning, the influx of foreign investment on a massive scale and the Government’s commitment to reviving the economy, inflation has fallen rapidly to below 20% today.
What about us?
Morocco has made a choice, unquestionably the most appropriate one given the specific characteristics of its economy and will make a success of the transition with the unflinching support of Bank Al-Maghrib. Governor Abdellatif Jouahri and his staff have already done an excellent job!
Adopting a flexible exchange rate regime for the dirham will help to reduce the impact of shocks on the domestic economy, enhance its competitiveness and support strategies for diversifying foreign capital flows.
Lastly, this strategy will also benefit from having a central bank which has been bolstered by the recent reforms which are in the process of being voted. These reforms will give it greater independence and a decision-making role in managing exchange rate policy, which in this case means the dirham’s flexibility.
Afifa Dassouli
The recent data from the Office des Changes at 30 November 2017
At 30 November 2017, imports of goods and service (+MAD 30.8 billion) rose more rapidly than exports (+MAD 28.6 billion), resulting in a widening of the trade deficit by MAD 2.2 billion (-MAD 96.7 billion versus -MAD 94.5 billion at 30 November 2016). The coverage ratio stood at 77.6% versus 76.5% the previous year.
Growth in imports of goods and services was due to increased imports of goods (FOB) (+MAD 21.5 billion), especially energy products, rather than spending on services (+MAD 9.3 billion).
Growth in exports was due to the healthy performance of the export sector (+MAD 18.9 billion), particularly sales of phosphates and derivative products and automotive, agricultural and food exports and an increase in receipts from services (+MAD 9.7 billion).
Remittances from Moroccans living abroad rose by 4% or +MAD 2.3 billion to MAD 60.2 billion versus MAD 57.9 billion at 30 November 2016.
Lastly, FDI flows registered an increase of 13.2% or +MAD 2.6 billion. This was due to expenditure (MAD -7.9 billion) declining more rapidly than receipts (-MAD 5.4 billion).
At 30 November 2017, net international reserves stood at MAD 238.4 billion versus MAD 249.2 billion at 31 December 2016.
Official reserve assets stood at MAD 241.3 billion versus MAD 253. 5 billion at 31 December 2016 while short-term foreign currency liabilities totalled MAD 2.9 billion versus MAD 4.2 billion at 31 December 2016.
A.D
Original article : https://lnt.ma/flexibilite-experiences-uns-profitent-aux-autres/
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