Morocco Extends Rate Pause to Near 4 Years After Easing Nod

LONDON (Capital Markets in Africa) – Morocco’s central bank held its interest rates steady, opting against ending a nearly four-year freeze even after King Mohammed VI called on lenders to open their taps for businesses.

A decision on Tuesday kept the benchmark rate at 2.25%. It’s a surprise because the central bank started to shift toward monetary easing in September by lowering mandatory reserves for lenders, a measure that unlocks liquidity and could revive the flow of credit in the economy.

The bank chose to hold rates after assessing “medium-term prospects for inflation, growth, external accounts, monetary conditions, and public finance,” the bank’s board said in a statement. The institution has approved measures to support entrepreneurship, it said, without giving further details.

The central bank hasn’t budged on rates since 2016 despite taking an increasingly dim view of the North African country’s economy after a poor harvest and still-weak demand from its key markets in Europe.

While the institution is independent, the king — who already holds sweeping powers — has recently taken a more prominent role in economic policy amid warnings the country is struggling to meet the needs of the mainly youthful population as unrest engulfs neighboring Algeria. He’s appointed a committee to present suggestions for significant economic reforms.

The International Monetary Fund this week said Morocco needed “sustained reforms” to raise growth and reduce high unemployment and regional disparities. “Reforms of education, governance, and the labor market should also contribute to more private sector-led growth and job creation,” it said after completing a review for a liquidity line program.

The central bank also made these economic projections:

• Inflation for 2019 is revised down to 0.3%; seen accelerating to 1.1% in 2020
• Economic growth revised down to 2.6% in 2019; 3.8% in 2020 if grain harvest hits 8 million tons
• Foreign-currency reserves will continue to be enough for five months of imports into 2020 due to planned sovereign bond sale

Source: Bloomberg Business News