“The Council judged that the current level of 3% of the key rate remains appropriate and favors the return of inflation to levels in line with the objective of price stability,” indicates BAM in a press release published at the end of the last quarterly meeting of its Board for the year 2023.
The Council therefore decided to keep the key rate unchanged while continuing to closely monitor developments in the economic situation and inflationary pressures, both at the national and international level, the press release specifies.
Regarding domestic inflation, the Council noted a significant slowdown which should continue in the medium term. Indeed, since the peak of 10.1% reached last February, inflation has gradually decelerated to return to 4.3% in October and will end the year with an average of 6.1% compared to 6.6% in 2022.
Taking into account the expected dissipation of inflationary pressures of external origin, the direct effects of the fiscal measures of the 2024 finance law and the process of gradual decompensation provided for by the three-year budget programming 2024-2026, and under the hypothesis of a quasi-stability of the prices of food products at volatile prices, inflation should record a clear drop to around 2.4% in 2024 and 2025.
Its underlying component would experience a similar evolution, going from 6.6% in 2022 to 5.6% in 2023 then would decrease to 2.4% in 2024 and 2.3% in 2025.
The Council also noted that medium-term inflation expectations as reflected in the BAM quarterly survey continued to decline in the fourth quarter of 2023 and that the cumulative transmission of its last three decisions to increase the key rate monetary conditions and the real economy continues.
In terms of growth, BAM notes that after a rate of 1.3% recorded in 2022, it should settle at 2.7% this year and gradually improve to 3.2% in 2024 then to 3. 4% in 2025.
“Taking into account cereal production of 55.1 million quintals for the previous campaign, agricultural added value should improve by 5% in 2023. It would then increase by 5.9% in 2024 and by 2% in 2025, under the assumption of average cereal production of 70 million quintals and the continuation of the trend performance of other crops.
For non-agricultural activities, the rate of increase in their added value should be 2.5% this year, 2.7% in 2024 before accelerating to 3.7% in 2025, driven by the expected recovery. in the industrial and construction sectors.
On the other hand, the realization of the numerous large-scale projects planned or currently being implemented gives hope for a new dynamic in investment and economic activity in the medium and long term.
In terms of external accounts, after the strong dynamics of the last two years, trade in goods should show a slight decline in 2023 before resuming its increase.
They would then increase at a rate of around 7% annually, driven mainly by sales in the automotive sector which would reach 190 billion dirhams (billion dirhams) in 2025, while those of phosphate and derivatives would experience a slight recovery to stand at 72.2 billion in the same year.
For their part, travel revenues should continue to improve with an increase of 13.2% in 2023 to 106 billion dirhams, quasi-stability in 2024 and an increase of 6.5% in 2025 to 112.4 billion dirhams, at in favor of the expected acceleration of economic activity in the euro zone, the main source market to Morocco.
Regarding transfers from MRE, they should amount to 112.8 billion dirhams in 2023, compared to 110.7 billion in 2022, and reach 120 billion in 2025.
Under these conditions, the current account deficit would be reduced to 1.6% of GDP this year and would widen to 2.5% in 2024 then to 3.8% in 2025.
Concerning foreign direct investment (FDI) receipts, they would experience a decline in 2023 to around the equivalent of 2.3% of GDP, before returning to their trend level of 3% over the next two years.
Thus, the official reserve assets of Bank Al-Maghrib would be at 360.9 billion dirhams at the end of 2023 and 2024 before reaching 372.1 billion at the end of 2025, adds the same source, noting that they would thus represent the equivalent of 5 months and 16 days of imports of goods and services in 2023 and almost 5 months and 6 days over the following two years.
As for monetary conditions, lending rates experienced a new quarterly increase of 10 basis points to 5.36% in the third quarter of 2023, thus accumulating an increase of 112 basis points since the start of the tightening of monetary policy. .
For its part, banks’ need for liquidity would continue to grow, reaching MAD 92.6 billion at the end of 2023 and reaching MAD 137.7 billion in 2025, driven by the progression of fiat money.
For its part, credit to the non-financial sector should experience a significant deceleration with a rate falling from 7.9% in 2022 to 2.6% in 2023, before accelerating to 4.6% in 2024 and to 4. 7% in 2025.
Regarding the real effective exchange rate, after a drop of 3.9% in 2022, it would show an increase of 0.8% in 2023, and would continue its appreciation with rates of 1.1% in 2024 and 0 .6% in 2025, mainly linked to the appreciation of its value in nominal terms.
In terms of public finances, the budget deficit should be, according to BAM macroeconomic projections, at 4.8% of GDP in 2023, 4.5% in 2024 and 3.9% in 2025.
the Board adopted the strategic plan of Bank Al-Maghrib for the period 2024-2028, approved the Bank’s budget for the 2024 financial year, validated the foreign reserve management strategy as well as the internal audit program and set the dates of its ordinary meetings for the same year as March 19, June 25, September 24 and December 17, the press release concludes.
Title: An Interview on Morocco’s Economic Outlook with an Expert in Monetary Policy
Time.news Editor: Thank you for joining us today. We’ve just seen some interesting updates from the Bank Al-Maghrib regarding the country’s monetary policy and economic outlook. Can you shed light on the decision to maintain the key interest rate at 3%?
Expert: Thank you for having me! The decision to hold the key rate at 3% indicates a cautious yet positive approach by the Bank Al-Maghrib. This strategy aligns with their goal of achieving price stability and controlling inflation, which has recently shown signs of significant slowdown.
Time.news Editor: Yes, the latest figures show a decrease in inflation from a peak of 10.1% earlier this year to 4.3% in October. What do you attribute this decline to?
Expert: Several factors contribute to this decline. Primarily, we’ve seen a dissipation of external inflationary pressures, which have been a major concern. The fiscal measures outlined in the 2024 finance law are also expected to play a crucial role in stabilizing prices. Moreover, the production of key agricultural products, such as cereals, is anticipated to improve, which can further ease food price inflation.
Time.news Editor: Speaking of agricultural production, how do you see it influencing the broader economic landscape in Morocco?
Expert: Agriculture is a cornerstone of the Moroccan economy. The expected increase in cereal production—and subsequently agricultural added value—suggests a solid foundation for economic growth. We’re projecting a 5% increase in agricultural added value for this year, with further growth expected in the coming years, which will positively affect the overall GDP growth rate.
Time.news Editor: Speaking of GDP, the growth rates you’re mentioning show an improvement from 1.3% in 2022 to 2.7% this year, and projections for 2024 and beyond are even more optimistic. What are the main drivers behind this anticipated growth?
Expert: It’s a combination of factors. The recovery in industrial and construction sectors, bolstered by ongoing large-scale projects, is likely to drive non-agricultural added value upward. The automotive sector, in particular, is a key player here, with significant sales expected by 2025, fueling economic activity.
Time.news Editor: With an increase in exports and improving travel revenues projected, how important are these factors for the country’s external accounts?
Expert: Very important. The travel sector is particularly promising, showing a substantial recovery with a projection of 106 billion dirhams in revenues this year. This, alongside steady export growth, especially in automobiles and phosphates, signifies a positive turn in trade balances. However, we must keep an eye on the current account deficit, which is expected to widen slightly in the coming years.
Time.news Editor: Looking forward, what challenges do you foresee that could impact this positive trajectory?
Expert: It’s crucial to remain vigilant about inflationary pressures, both domestically and internationally. Fluctuations in global commodity prices, geopolitical tensions, and economic conditions in Europe—Morocco’s main trading partner—could all affect growth. Moreover, the successful implementation of the fiscal measures and maintaining investor confidence will be key in managing these risks.
Time.news Editor: Great insights! it seems Morocco is on a cautious yet upward trend. What would be your message to policymakers moving forward?
Expert: I would urge them to prioritize stability while encouraging investments in both traditional sectors like agriculture and emerging sectors like technology. Economic resilience amid global uncertainties will be paramount, and maintaining clear communication with all economic stakeholders will be essential in navigating the upcoming years.
Time.news Editor: Thank you for your valuable analysis. It seems clear that while there are challenges ahead, there’s also significant potential for growth in Morocco’s economy.
Expert: Thank you! It’s an exciting time for Morocco, and with the right measures in place, we can look forward to a robust economic future.