Morocco central bank cuts benchmark interest rate to 2.25 percent

CASABLANCA, Morocco, Capital Markets in Africa — The Moroccan central bank cut its benchmark interest rate on Tuesday for the first time since December 2014 in an attempt to stimulate an economy hurt by weak cereal production and non-agriculture activity.

The Bank reduced the key rate by 25 basis points to 2.25 percent, Bank Al-Maghrib said in a statement. The central bank also lowered its growth forecast for this year to 1 percent from 3 percent. The median estimate of five economists surveyed by Bloomberg is for 2.5 percent expansion.

The rate cut took into account “the central inflation projection, weak non-agricultural growth, the continued reduction of the budget deficit and the strengthening of foreign exchange reserves,” the central bank said. The bank also revised down its inflation forecast for 2016 to 0.5 percent, compared with 1.6 percent last year.

Central bank Governor Abdellatif Jouahri declined to give a time-frame for the country’s transition to a flexible exchange rate. Morocco is following the International Monetary Fund process and the bank is working with the country’s business lobby as it seeks to protect small businesses from the change, Jouahri told reporters after the rate decision.

Morocco said last year it will adopt a flexible exchange rate to attract more investment and turn itself into a regional financial hub.

Based on an average global oil price of US$38.40 a barrel, the bank said the current account deficit should narrow to 0.1 percent of GDP in 2016, and around 0.3 percent in 2017.

Morocco’s trade deficit rose 10.1 percent to 21.16 billion dirhams ($2.17 billion) in the first two months of 2016 compared with a year earlier, while foreign exchange reserves seven months and 21 days of import needs.

The bank expects the deficit to be down to 3.7 percent in 2016 down from 4.3 percent in 2015 and 3.1 in 2017.