After raising its key rate by 50 basis points (bps) to 2% at its third meeting of 2022, a consensus emerges from various analyzes in favor of a new monetary tightening of the Central Bank.
In its pre-Board flash, CDG Capital Insight explains that this last session takes place in a particular national and international context, marked in particular by the post-Covid19 recovery requirements, the uncertainties surrounding the recovery in 2023, as well as by the persistence of inflationary slippages, food and non-food, suggesting that inflation will last for the next financial year.
Financial investors are thus forecasting an increase in BAM’s key rate by 50 bps at the end of the next meeting of the Bank’s Board, according to the latest “report research strategy” from Attijari Global Research, a scenario shared by other economists who also attribute it to the need to preserve savings threatened by a negative level of real interest rates.
True to its main objective of ensuring price stability, the Central Bank aims through its interventions, particularly on the interbank market – its operational target – to preserve the purchasing power of citizens and guarantee better visibility for investors. and businesses. In doing so, it also contributes to the country’s growth, employment and economic development.
Noting a continued rise in inflation and the underlying component under the triple effect of an exogenous shock, drought and a transmission to the prices of non-tradable goods, CDG Capital Insight, which expects an increase of 50 bps in the key rate, notes the existence of an upward slippage in inflation in Morocco, having risen to 8.1% in October 2022 instead of 1.7% a year earlier and this, like almost the majority of countries at the international level, particularly those whose rate of dependence on imports of raw materials, semi-finished products and energy is high.
This surge is mainly due to the sharp rise in the prices of raw materials and energy at the international level and its impact on the production costs of the local manufacturing industry and imported consumer goods, the supply shock on the supply of connection with the poor 2021-2022 agricultural campaign, as well as the transmission of the rise in prices to non-tradable goods with the rest of the world, in connection with the increase in the cost of inputs, in particular raw materials and the cost of transport.
Faced with this context, the economist and specialist in foreign exchange policy, Omar Bakkou, supports the scenario of raising the key rate to curb inflation and put an end to the policy of monetary activism carried out during the period of the crisis. health, following in the footsteps of other international central banks, notably the Fed and the European Central Bank (ECB).
The issuing institution, which takes two main variables into consideration in its arbitration, in this case the inflation gap and the output gap in relation to their potential levels, may take the decision to increase the key rate. to return at least to its pre-Covid level, particularly in view of the worrying rise in the inflation rate that it forecasts for a horizon of eight quarters (24 months), explains Mr. Bakkou.
The efficiency of the interest rate channel is a determining factor in achieving the ultimate objective of price stability. That said, the reaction of lending and deposit rates, in proportion to the rise in the key rate, should slow down lending and favor an increase in savings, thus generating a slowdown in overall domestic demand, and consequently in inflation.
In this sense, Mr. Bakkou considers it desirable to raise the key rate in the face of a situation marked by the persistence of real interest rates (note: nominal interest rates adjusted for inflationary variations) in negative territory.
In addition to preserving price stability, the Central Bank must ensure the proper functioning of financial markets, something which requires that the interest rate used be a “neutral” interest rate that favors neither savers nor debtors, he explains.
“No saver has an interest in placing his money in the long term in this situation”, indicates the economist, noting the need to increase the key rate to adjust real interest rates upwards and protect savings.
In this context, CDG capital insight indicates that bank deposit rates, which reflect the second part of the “rate” transmission channel of monetary policy, recorded insignificant variations in October with a slight increase of 0.03 % rates associated with 1-year term deposits at 2.41%, compared to a similar slight decline for 6-month deposits at 2.08%, month-on-month.
Thus, the process of increasing the liquidity of bank deposits, which began with the outbreak of the covid19 crisis and the reduction in the key rate, continues with a drop, year-on-year, in term deposits from -12.2% to at the end of October 2022 against an increase of 8.6% in sight deposits and 7.2% in fiduciary circulation, specifies the flash, judging, on this basis, that the transmission of the last increase in the key rate, of 50 bps in September, towards the lending and deposit rates, is almost nil.