Bank Al-Maghrib (BAM), which held its quarterly meeting on Tuesday 26th September, unsurprisingly decided to keep its key rate unchanged at 2.25%.
Since the start of the economic and financial crisis which has affected every economy since 2007, the Moroccan Central Bank has used this monetary policy tool to support the banking system as well as the business sector.
A crucial role
The goal is to ensure that the economy is properly funded while safeguarding the financial health of the banks.
As a result, the key rate, which stood at 3.50% in December 2008, was lowered to 3.2% in March 2009 and remained at this level until April 2012 when it was again lowered to 3%, where it stayed until December 2014.
The rate was then cut to 2.75% and then soon afterwards to 2.50% in January 2015 where it remained for more than a year. Since March 2016, the key rate has stood at 2.25%.
To weather the crisis and the growing risks associated with it, BAM went beyond its traditional role of fighting inflation and got involved in supporting the Moroccan economy.
Like the ECB, the Fed and other central banks, Bank Al-Maghrib has supported commercial banks by providing liquidity against collateral (Treasury bonds and even corporate bonds) for 7 day periods and occasionally longer (for up to three months) to enable them to continue to continue to finance the economy, but without going so far as to ‘buy’ their debt and burden its balance sheet as a result.
However, despite the fact that ‘recent economic trends and the Bank’s macroeconomic outlook for the next eight quarters’ are positive, justifying the Bank’s decision to maintain the key rate at 2.25%, the inflation rate poses a question.
Yes, but…
What is striking, perhaps, is that the current key rate, which is meant to curb inflation, would appear to be too high by comparison with the inflation rate.
Bank Al-Maghrib has pointed out that inflation has declined sharply from 1.9% during the first two months of 2017 to 0.2% on average over the next six months, mainly due to a fall in the price of foodstuffs, which are volatile by nature.
Inflation is likely to rise to 0.6% for the remainder of the year 2017 and to 1.3% in 2018.
And although the Central Bank points out that “its underlying component, which reflects the fundamental trend in prices” is likely to trend higher, from 0.8% in 2016 to 1.4% in 2017 and 1.6% in 2018, inflation still remains under control at less than 2%.
It must be remembered that central banks around the world did not hesitate to lower their key rates to 0% to boost their economies.
As a result, it is reasonable to ask whether Bank Al-Maghrib could not have taken advantage of this opportunity to lower its key rate even further so as to continue to support the financing of the economy during this interim period.
And even more so, in the knowledge that an expected growth recovery would inevitably result in a pick-up in inflation. This acceleration in inflation, concomitant with economic expansion, would be driven by an increase in commodity prices, particularly the price of petrol which has already appreciated by more than 20%.
Necessary to be ahead of the curve
We know that the financial health of the banking system is protected to a large extent by mechanisms adopted to bolster banks’ capital (subordinated bonds, plain vanilla bonds and perpetual bonds).
Similarly, banks have also adopted measures against increased risk by increasing loan-loss provisioning while continuing to post decent earnings.
A number of banks have seen their earnings boosted by the contribution from their African subsidiaries, which now account for more than 30% of their earnings.
And if global growth firms up as expected in 2017, driven by a growth acceleration in advanced economies with Eurozone growth projected to be 1.7% and 2.1% for the US, the Central Bank forecasts growth of 4.3% for the Moroccan economy, triple the rate seen in 2016!
After registering growth of 1.2% in 2016, global growth, according to Bank Al-Maghrib’s forecast, should increase to 4.3% in 2017 before falling back to 3.1% in 2018.
Given these exceptional circumstances, shouldn’t Bank Al-Maghrib continue to support the financing of the economy?
This Moroccan growth spurt, undoubtedly boosted by the latest healthy agricultural harvest, is also due to something significantly new, as revealed by the same figures released BAM, which is that non-agricultural GDP has been rising steadily, from 2.2% in 2016 to 2.9% in 2017, and is slated to reach 3.5% in 2018.
And that is indeed good news!!!
Afifa Dassouli
Original article : https://lnt.ma/bank-al-maghrib-ne-devait-reduire-taux-directeur/
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