Key rate: status quo, the most likely scenario

While the ECB intends to raise its core rates in July and September, Fitchs solutions estimate that Bank Al-Maghrib should also make two increases of 25 bps each, in the second half, due to the rapid inflation and declining growth this year. On the other hand, BKGR expects the status quo of the Central Bank’s core rate. Here are his arguments.

With its Quarterly Council approaching on June 21, should we expect a key rate increase? Will Bank Al-Maghrib (BAM) be able to adapt to the changes to be made in Europe? In fact, the European Central Bank (ECB) announced last Thursday their intention to raise key rates by 25 basis points (bps) in July and then in September.

To combat current inflation in the Euro zone (8.1% for a year, in May), the ECB intends to use the key rate lever. Note that the Moroccan economy is in the same inflationary situation, at 5.9% year-on-year at the end of April. Is this situation likely to push Bank Al-Maghrib to change its rates upwards? In a recent note, FITCH solutions estimated that the Central Bank should continue with two rate increases of 25 bps each, in the second half of the year, due to runaway inflation and lower growth this year.

In this context, and according to BAM’s post-Board note, drawn by BMCE Capital Global Research (BKGR), the research firm relies “on Bank Al-Maghrib’s maintenance, in June, of monetary policy conditions its, with a policy rate and reserve requirement of 1.5% and 0%, respectively ”. According to this analysis, on the price side, the recovery in economic activity and the accommodation of financial conditions have not been able to curb imported inflation, which has reached record levels since the beginning of the year. “Right now, it is clear that this price increase is not in any way a source of money”, estimate analysts of BKGR.

Furthermore, the economic rebound observed in 2021 in Morocco was due, in part, to the cooperative monetary policy undertaken by the Central Bank by, in particular, maintaining the key rate at 1.5% after the double -digit reduction. operated in 2020. This system was put in place before the start of the pandemic and the support of the money market, by satisfying 100% of the weekly demand from banks, mainly in the form of 7-day progress.

Slow growth for 2022
However, the momentum initiated in 2021 will unfortunately slow down in 2022 by the effects of severe drought that has affected agricultural production and the consequences of the conflict between Russia and Ukraine. A difficult context “led the Central Bank to change down its growth forecasts for the national economy to +0.7% against +2.9% initially”, according to analysts.

In addition, the government revised its growth forecasts to 1.7% against 3.2% expected in the Monetary Policy in 2022. the IMF and 1.3% for the World Bank (against 1.8% for the BKGR). To this end, the research office estimates that this slowdown seems to have already been seen in Q1-2022 where HCP estimates growth at 1.8% (compared to 7.9% in Q4-2021) under the weight of 12 .1 % of agriculture. activities, which were not paid for by the 3.3% increase in non-agricultural value added.

“This trend should be confirmed in Q2-2022 as GDP is expected to grow weakly by 1.2%” it noted. Given the latest estimates from the Ministry of Agriculture – assuming that cereal production for the 2021/2022 season will be 32 MQx at the end of May (against 25 MQx taken as the basis for the revision of the Central Bank) – a slight upward revision in the growth rate could result in the conclusion of the next Monetary Policy Council.

The budget deficit is shrinking
In addition, the BKGR remains optimistic about the budget deficit situation, ensuring that “initial fears of a deterioration of such a deficit seem to be disappearing at the moment (-6.3% of GDP versus -5.9% LF forecast 2022) ”, as public finances show good stability with the deficit reduction at the end of April to -11.5 billion dirhams (against -21.7 billion dirhams for the same period last year).

This was essentially a result of the improvement in ordinary income, although compensation costs continued to rise to reach 12.4 billion dirhams (+73%). On the other hand, the delivery mechanisms continue to show their effectiveness, allowing the total outstanding bank debt to record an increase of 3.2% to 980.7 billion dirhams by the end of April 2022 … Thus taking advantage of the decrease in average lending rate (by companies and households) at 4.28% in Q1-2022 compared to 4.44% in Q4-2021.

With regard to key rates, “Argentier Kingdom sees its financing conditions generally becoming more expensive”, according to BKGR. After recording bond rate reductions from -30 to -88 bp since the first principal rate reduction in 2020, principal rates have risen on average to approximately +10 to +20 bp.

Sanae Raqui / ECO Inspirations

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