There may be little reason for Bank Al-Maghrib to reach for the rate lever when its board meets next Tuesday.
Inflation has eased, the economy is still growing at a healthy pace and earlier rate cuts are still working their way through bank lending. Against that, another bout of trouble in international energy markets could quickly make itself felt in a country that imports much of its energy.
For economists Mohammed Jadri and Khalid Doumou, that balance points to the same outcome on September 22—leave the policy rate at 2.25%.
“At this stage, I see neither an urgent need to cut the rate further nor a need to raise it immediately,” Jadri told Le360.
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Prices give BAM little reason to tighten. The Consumer Price Index fell 1% in July from the previous month, while core inflation was down 0.1% both month-on-month and from a year earlier.
Growth, meanwhile, gives it little reason to rush another cut.
The economy expanded 4.6% in the first quarter and the HCP expects growth to have averaged around 4.7% over the first half of the year, helped by agriculture, services and domestic demand.
Jadri would rather see what the central bank’s previous moves have already done.
Changes in the policy rate do not reach businesses and households overnight. They have to pass through banks first, into lending rates and eventually into borrowing, investment and household credit. That process takes time, and Jadri believes BAM can afford to give it some.
The argument for waiting becomes stronger once oil enters the picture.
Morocco remains exposed to swings in international energy prices, and Jadri sees the Middle East as the main risk to an otherwise comfortable domestic inflation picture. A fresh rise in oil and gas prices could bring inflation back through the import bill.
The European Central Bank’s move on September 10 has added to that caution. It raised rates by 25 basis points as the conflict in the Middle East kept inflationary pressure alive and now expects eurozone inflation to average 3% this year.
Jadri does not expect Rabat to follow Frankfurt for the sake of it.
Conditions are different, he says, but the ECB move is another reason not to assume the inflation problem has disappeared simply because domestic readings have improved.
That leaves a rate increase looking unlikely and another cut possible later if inflation stays subdued and external risks recede. For next Tuesday, Jadri calls 2.25% “the most coherent scenario”.
Holding rates would also leave BAM with room to move later rather than spend that room now.
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Doumou arrives at the same rate call from a somewhat different direction.
He expects growth of between 4.9% and 5.3% this year and average inflation of around 1.5%, figures that offer little immediate reason for a sharp move in either direction.
There is also the calendar.
BAM’s board meets on September 22. Voters go to the polls the following day.
Doumou does not expect the central bank to make what he calls a “shocking” move on the eve of the legislative election and believes any adjustment could instead come after the next government is formed.
He also sees limits on how much monetary policy can do on its own. With youth unemployment at 27.2% among 15- to 24-year-olds, Doumou argues that the larger task is to direct growth towards sectors that create jobs rather than expect changes in borrowing costs to carry the burden.
External risks remain part of his calculation too. The conflicts in Ukraine and Gaza and tensions around the Strait of Hormuz and Bab el-Mandeb have kept pressure on supply routes for energy and other strategic goods.
For BAM, those risks arrive just as the domestic numbers are giving it the luxury of waiting.
The central bank will make its call on September 22.
