“At Fitch Solutions, we expect Morocco’s central bank to raise its key rate by 50 basis points in the second quarter to end the year at 2.00%. This marks an upward revision from our previous forecast of a 25 basis point hike, as we now expect higher inflation and a more hawkish European Central Bank (ECB) that will put Bank Al-Maghrib (BAM) in a more comfortable position to raise interest rates in the second half of 2022 and normalize monetary policy to pre-Covid-19 levels,” said the economic advisory firm, a subsidiary of the American rating agency Fitch ratings. .
“The surge in inflation will push BAM to tighten monetary policy more aggressively in the coming quarters. We have revised our average inflation forecast for 2022 from 4.5% to 5.2%, as we now expect inflationary pressures to remain elevated for longer than expected.
The latest CPI reading for April showed inflation rose 5.9% year-on-year. The highest monthly rate on record, says Fitch Solutions, explaining that inflation was mainly driven by food prices which rose 9.4% year-on-year.
“Food inflation will remain high for the rest of 2022”
For non-food inflation, the subsidiary of Fitch Ratings notes that it increased by 3.7% year-on-year. “Food inflation will remain elevated for the remainder of 2022 as global supply constraints as well as a contraction in domestic agricultural production will keep prices high,” Fitch Solutions predicts.
The Fitch Ratings subsidiary also expects high energy prices to add to inflationary pressures, and Brent prices to average $100 a barrel.
However, Fitch Solutions believes that ‘a better-than-expected agricultural harvest will ease BAM’s growth concerns, prompting it to raise interest rates’.
She reminds us that, during the meeting of its Board of Directors last March, the Central Bank had decided to maintain the key rate at 1.50%, because “it expected a contraction of 19.8% of the agricultural GDP and a drop of more than 75% in cereal production”.
However, the same source continues, the most recent estimate of cereal production from the Ministry of Agriculture in May for the 2021/2022 season amounted to 32.0 million quintals, 28% more than expectations. of BAM of 25 million quintals. Which, according to Fitch Solutions, will ease some of BAM’s concerns regarding economic growth.
Another element raised by Fitch Solutions is that BAM, although it allows a trading range of 7.5% on the dirham, generally tightens its monetary policy in accordance with the ECB (European Central Bank) in order to maintain its monetary system.
“Our Europe team expects the ECB to start raising interest rates in July. This comes amid a global tightening cycle, with the US Federal Reserve hiking another 100 basis points in the second half of 2023, which we believe will push BAM to follow with two 25 basis point hikes by the end of 2023. end of the year,” predict the experts at Fitch Solutions.