Morocco’s Central Bank Implements Key Rate Reduction to Stimulate Growth

Morocco’s central bank reduced its benchmark interest rate by 25 bps to 2.25%, indicating an effort to support growth and job creation while maintaining a moderate inflation outlook of 2%. Economic growth is projected at 3.9%, with a grain harvest forecasted at 3.5 million tonnes, although uncertainties from geopolitical tensions could affect these forecasts.

On Tuesday, Morocco’s central bank announced a 25 basis point cut to its benchmark interest rate, reducing it to 2.25%. This marks the second consecutive reduction and aligns with the bank’s assessment of inflation trends, aiming to foster economic growth and job creation. The decision is part of an ongoing strategy since last June to enhance investment in infrastructure, particularly as Morocco readies to co-host the 2030 World Cup.

Inflation remains a concern, predominantly due to food prices, but is anticipated to stay “moderate” at around 2% for this year and the next. The bank’s expectations, however, are tempered by uncertainties arising from geopolitical issues and the effects of a prolonged drought on agricultural output. Furthermore, it projects that Morocco’s economy will grow by 3.9% this year, a slight increase from the previous year’s 3.2%.

In terms of agricultural forecasts, Morocco expects a grain harvest of 3.5 million tonnes this year, reflecting an improvement from last year’s 3.12 million tonnes, although this figure still falls short of historical averages. Additionally, the current account deficit is projected to rise to 2.9% of GDP this year from last year’s 1%, as imports continue to surpass exports.

The central bank also noted that Morocco’s foreign exchange reserves are expected to reach 391.8 billion dirhams (approximately $40.5 billion) by the end of 2025, which would be sufficient to cover 5.5 months of imports. In financial planning, increased tax revenues are anticipated to help mitigate rising investment expenditure, reducing the fiscal deficit to 3.9% of GDP in 2025 and 3.6% in 2026, down from 4.1% in the previous year.

In summary, Morocco’s central bank has implemented a key interest rate cut to stimulate growth amidst a moderate inflation outlook. The measures aim to bolster infrastructure development leading up to the 2030 World Cup. Despite optimistic economic growth forecasts, challenges such as geopolitical uncertainties and agricultural impacts from drought remain. The projected increase in tax revenues may assist in managing fiscal deficits moving forward.

Original Source: www.tradingview.com