Prior to 15 January 2018, Morocco had a fixed exchange rate regime, meaning that our currency was pegged, thereby ensuring price stability.
Dirham flexibility means the end of an era, with an inflation target now becoming the new ‘peg’.
The responsibility for determining an inflation-targeting regime of course falls on Bank Al-Maghrib.
But what exactly does inflation targeting mean?
It consists of committing the Central Bank, via its monetary policy, to achieving a target inflation rate that has been determined in advance.
The target, at all costs!
A number of countries including the United Kingdom, the Czech Republic and Turkey have adopted this system.
Their central banks are committed to inflation targets and pre-determined timeframes for reaching them. A central bank’s credibility depends on its ability to reach this target within the specified timeframes and deadlines.
An inflation target brings stability to the economy due to the fact that economic agents can factor it into their medium-term decision-making.
In fact, if BAM announces its commitment to maintaining inflation at a moderate level over a certain number of months, then economic agents will sign up to this target and factor it in. It can then be said that the pre-determined target has been implicitly reached.
But in order to do this, BAM has had to acquire cutting-edge analytical systems to be able to generate very detailed forecasts.
As a result, the Central Bank adopted the Forecasting Policy Analysis System (FPAS).
This requires expert knowledge of times series of different variables such as inflation, growth etc. and must include a component for short-term forecasting, that is to say, a system which enables the Central Bank to track price and growth trends.
Thanks to this capability, the Central Bank is now able to make forecasts for the following six or eight quarterly periods and take the required inflation-targeting decisions to be able to implement the flexible dirham exchange rate regime.
Since 2015, BAM’s staff have been working on building specific models, aided by a technical assistance team from the IMF so as to make these systems as robust as possible.
In Morocco, this system has been implemented very quickly by comparison with other countries, which have taken seven years or more to adopt it…
Afifa Dassouli
Original article : https://lnt.ma/cible-dinflation-base-dun-regime-de-change-flexible/
Pour aller plus loin
