Rabat - Morocco’s central bank, Bank Al-Maghrib (BAM) is expected to continue cutting its policy rates throughout the second half of 2024, according to Fitch Solutions.
This monetary policy adjustment comes as other North African countries – Algeria, Egypt, and Tunisia – are anticipated to maintain their current rates due to persistent inflation concerns.
The latest report from Fitch suggests that Morocco will reduce its key interest rate by a total of 50 basis points (bps) by the end of 2024, following a previous cut in June.
BAM is projected to execute two additional 25 bps cuts in September and December, bringing the key rate down to 2.25% by year-end.
The forecast is based on Morocco’s notably low inflation, which dropped to 1.8% year-on-year in June 2024, a significant decrease from the double-digit inflation rates observed last year.
Morocco’s current inflation rate remains below 2.0%, allowing the BAM to move to a more accommodative monetary policy.
Inflation remains low in Morocco despite the government’s decision to reduce subsidies on butane gas, which was initially expected to put upward pressure on prices.
The low inflation rate is anticipated to provide the necessary conditions for BAM to lower borrowing costs, thereby stimulating economic growth and employment while also reducing government debt servicing costs.
Planned rate cuts are part of Morocco’s broader economic strategy to bolster growth, employment, and competitiveness. With inflation predicted to remain low at 1.9% into 2025, these cuts are expected to fuel economic activity by making credit more accessible to businesses and consumers.
Another factor that would influence BAM’s decision is the desire to maintain a favorable interest rate differential with major global economies, particularly the European Central Bank (ECB) and the US Federal Reserve.
Morocco’s managed currency peg to the Euro requires a careful balance in interest rates to maintain economic stability and competitiveness on the international stage.