2023-07-01 11:02:26
Lhe break may be short-lived for Bank Al-Maghrib. And the stop and go strategy is now consensus. According to several analysts, the bank should resume its cycle of rate hikes at its next meeting scheduled for September.
“After maintaining rates at its meeting on June 20, we now expect Bank Al-Maghrib to raise its key rate to 4% by the end of 2023, once morest 4.50% previously,” writes Fitch Solutions, for whom the BAM’s break came once morest its expectations of a 50 bps rise. For the rating agency, although “the pause comes in a context of sluggish economic activity (…), the cumulative monetary tightening of 150 bps since September 2022 will be insufficient to bring inflation back to its implicit target of 2% in the medium term” prompting BAM to continue its tightening cycle.
For its part, Attijari Global Research estimates that “taking into account the continuation of monetary tightening by the ECB and the expected resumption of the cycle of hikes in the Fed’s key rate following the break in June, BAM might in turn resume its course. restrictive by the end of the year in order to ensure that inflation returns to its objective of price stability in the medium term”.
It should be noted that during the bank’s press conference, the governor explained that keeping the key rate unchanged is intended to assess the effects of previous increases as well as the impact of the various measures put in place by the government to support certain sectors of activity and the purchasing power of households. Because rate hikes are a very effective tool for discouraging consumption and investment and thus easing the pressure on prices. But their full effects take time to be felt. And to tighten too much, it is the economic growth which would be threatened especially with an agricultural campaign below expectations.
Inflation beyond 2024
“We anticipate new measures to tighten monetary policy in the last quarter of 2023 and the first half of 2024. Thus, Bank Al-Maghrib should gradually increase its key rate to reach 4.50% by 2024”, specifies the ‘rating agency.
There are many reasons that will prompt the Central Bank to continue this tightening. First, inflation, which is clearly above target, and inflation expectations, which remain high. “Although we have revised our inflation forecast for 2023 down slightly from 7.8% to 7.5% due to the drop recorded in May, we are still convinced that high inflation expectations, negative real interest rates, weak agricultural production growth and expansionary fiscal policy will keep inflation high until 2024 (+5.4%)”.
This also suggests that real interest rates will remain negative until September 2024. On this point, AGR notes that the continuous increase in the volume of liquidity within the Moroccan economy has been fueled by a long cycle of low remuneration of savings. Remember that since Q4-2022, real rates in Morocco are still in negative territory.
Finally, the strategy adopted by Bank Al-Maghrib recalls that of the Fed at the end of the 1970s. Under the presidency of Paul Volcker, from 1979 to 1987, the American Central Bank followed an approach consisting in raising interest rates fighting inflation and then lowering them to stimulate economic growth. However, each time it relaxed its monetary policy, inflation started to rise once more, thus undermining all its efforts.
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