Morocco's Central Bank Poised for Further Interest Rate Reductions in 2024

In a significant move that could reshape Morocco's economic landscape, Bank Al-Maghrib (BAM), the country's central bank, is expected to implement additional cuts to its policy rates during the latter half of 2024. This forecast, put forth by Fitch Solutions, suggests a continuation of the monetary easing strategy initiated earlier this year.

According to the latest analysis, Morocco is projected to reduce its key interest rate by a total of 50 basis points (bps) by the end of 2024. This follows a previous rate cut implemented in June, signaling a sustained effort to stimulate economic growth.

Fitch Solutions anticipates that BAM will execute two more 25 bps cuts in September and December, ultimately bringing the key rate down to 2.25% by year-end. This strategic approach stands in contrast to the policies of other North African nations such as Algeria, Egypt, and Tunisia, which are expected to maintain their current rates due to ongoing inflation concerns.

The rationale behind this monetary policy adjustment lies in Morocco's remarkably low inflation rate. In June 2024, inflation dropped to a mere 1.8% year-on-year, a stark contrast to the double-digit figures observed in the previous year. With inflation consistently remaining below 2.0%, BAM finds itself in a position to adopt a more accommodative monetary stance.

Interestingly, Morocco's inflation rate has remained subdued despite the government's decision to reduce subsidies on butane gas, a move that was initially expected to exert upward pressure on prices. This unexpected price stability has created favorable conditions for BAM to lower borrowing costs, potentially catalyzing economic growth and employment while simultaneously reducing the government's debt servicing expenses.

These planned rate cuts are integral to Morocco's broader economic strategy aimed at fostering growth, boosting employment, and enhancing competitiveness. With inflation projected to hover around 1.9% into 2025, these reductions are anticipated to invigorate economic activity by improving access to credit for both businesses and consumers.

Another crucial factor influencing BAM's decision-making process is the imperative to maintain an advantageous interest rate differential with major global economies, particularly the European Central Bank (ECB) and the U.S. Federal Reserve. Given Morocco's managed currency peg to the Euro, striking a delicate balance in interest rates is essential for preserving economic stability and maintaining competitiveness on the international stage.

As Morocco navigates these economic waters, the world watches with keen interest. The outcomes of these monetary policy decisions could have far-reaching implications, not only for the North African nation but potentially for the broader region as well.