Growth in 2022 and Key Rate: Bank Al-Maghrib Board Tasks Scheduled for Tuesday

The central bank will hold its first board meeting of the year on Tuesday 22 March 2022 in a very chaotic economic context. The new growth forecast for 2022 and the key rate decision will be carefully monitored.

The first board meeting of Bank Al-Maghrib (BAM) for 2022 will take place tomorrow, Tuesday, March 22, in a difficult economic environment marked by the negative effects of the conflict in Eastern Europe on the one hand, and the drought at the national level on the other hand.

Abdellatif Jouahri, Wali BAM, as usual, will not fail to give his understanding of the economic and financial situation of Morocco, as well as his macroeconomic forecasts for the coming months.

Economic players will carefully study, in particular, the new GDP growth forecast set by the central bank. Last December, after its last board meeting, Bank Al-Maghrib projected a 2.9% growth rate for the current year, based on an average grain campaign of 75 million centners.

The problem is that, at the same time, January was particularly dry, jeopardizing the grain harvest. In addition, a Russian-Ukrainian conflict broke out, provoking an impressive rise in prices for a number of raw materials, which spurred inflation in Morocco.

Therefore, the Central Bank should integrate this new situation into its forecasting model, and a downward revision in growth rates will not come as a surprise.

Analysts such as BMCE Capital Global Research (BKR) are already anticipating a downward revision in growth rates. In a recent white paper entitled “Economic Sustainability Tested Again,” BMCE Capital’s research and financial analysis division now expects GDP to increase by 1.8% in 2022, up from 2.9% previously. According to BKR analysts, in the “worst” scenario, GDP growth may be limited to only 1%.

CDG Capital Insight, which publishes a note on the economic outlook for 2022, suggests that after strong growth recorded in 2021, the Moroccan economy should experience a “strong slowdown” below the 3% threshold in 2022. .

National economic activity must indeed suffer “from an agricultural campaign in climatic conditions that seem to be generally unfavorable, with very little rainfall and poor spatial and temporal distribution, suggesting a cereal production of less than 40 million centners.”

At the same time, non-agricultural growth (industry and services) should not compensate for the expected drop in agricultural growth. CDG Capital Insight even expects non-farm growth to decline given “the dissipation of the underlying effect of the Covid-19 crisis, lower margins in the secondary sector as a result of higher commodity and energy prices, and a weak recovery in some tertiary sectors, especially tourism and transport.”

Key rate: to the status quo, despite inflationary pressure?

Although a downward revision of the economic growth rate seems inevitable, it remains to be seen what fate awaits the key rate. In the face of inflation, will Bank Al-Maghrib’s board raise the base rate or leave it unchanged at 1.5%?

It should be kept in mind that the key rate is the rate at which the central bank lends money to commercial banks, which then distribute the loans among economic agents. Thus, the key rate allows you to control the money supply in circulation in order to control recessionary or inflationary dynamics.

Thus, in a situation of recession or slowdown in economic activity, a reduction in the key rate stimulates growth by reducing the value of money. Conversely, it rises in case of overheating to keep inflation around 2%.

However, Morocco is currently facing both a slowdown in economic activity and rising inflation. A situation that Attijari Global Research (AGR) analysts beautifully sum up: “in 2022, the mission of Bank Al-Maghrib turns out to be more complicated between, on the one hand, accelerating inflation at the international level and, on the other hand, a less vigorous growth of the economy under the influence of a modest agricultural campaign”, we can read in a recent report entitled “Inflation at the heart of monetary decisions in 2022”.

And add: “In Morocco, we note two sources of risk that can raise the inflation rate by more than 3% on average in the second half of this year. This is a possible slippage of the food component, the weight of which prevails in the basket of the Moroccan consumer and the preservation of the price per barrel above $100 for the whole of 2022.

Despite these risks, AGR analysts believe that the Central Bank should keep the key rate at 1.5%. “To date, it seems premature to us to expect a significant and sustained increase in consumer prices in Morocco. Indeed, the recent acceleration in inflation can be explained more by cyclical factors that should disappear in the future,” they explain.

Moreover, economic activity always needs a stimulus. “In our view, an active fiscal and monetary policy remains critical to support the sustainable growth of the Moroccan economy, especially in a difficult agricultural year marked by drought,” AGR said in a statement.

Thus, despite inflationary pressures at the global level, which are pushing for a tightening of the monetary policy of major central banks (the US Federal Reserve and the Bank of England raised their key interest rate by a quarter of a percentage point last week to counter inflation), according to AGR analysts, inflation in Morocco remains broadly under control (forecast is slightly above 2% in 2022), which excludes the scenario of a possible increase in the key rate.

Same story in CDG Capital Insight, which explains in a preliminary note from BAM that “a hike in the key rate could amplify the expected slowdown in national growth in 2022 by tightening financing conditions, not enough to control the upward slide. inflation.”

Bloomberg, for its part, does not exclude the possibility of raising the key rate. The Moroccan Central Bank may be tempted to raise rates for the first time since 2008 to protect its monetary anchor with the dollar and control inflation that is expected to rise due to the war in Ukraine. New York Press in a recent feature on the monetary policy outlook of major African central banks.

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