Morocco Holds Rates Again as It Awaits Economic Revival

CASABLANCA (Capital Markets in Africa) — Morocco held its benchmark interest rate at an all-time low of 1.5%, awaiting signs the economy is recovering from the pandemic.

The move by the central bank Tuesday was expected after the North African nation signaled it may dial back a recent borrowing spree, freeing up liquidity in the domestic debt market and blunting the need for an immediate cut. It’s the second consecutive hold after a record easing cycle that began in March.

The bank, in reaching its decision, said it reviewed the transmission of recent rate cuts and support and stimulus packages to mitigate the effects of coronavirus. It found “that the monetary policy stance is widely accommodative” and ensures “an adequate financing of the economy.”

Speaking to reporters, the central bank’s governor Abdellatif Jouahri said the kingdom’s economy will only get back to its pre-pandemic form in the medium term and singled out the crucial tourism sector as facing the most complicated path to recovery. Morocco may not be able to fully reopen its international borders before the second half of 2021, he said.

The impact of Covid-19 on tourism and other major foreign-currency earners led the kingdom this year to raise a record 60 billion dirhams ($6.7 billion) in external debt and more than double that in domestic issuance. In November alone, the government borrowed more money domestically than banks loaned to corporations and households between January and October.

“We are talking with the government to ensure that the private sector is not left with residues” for financing, Jouahri said, noting that a massive surge in households’ demand for cash has also contributed in tightening liquidity in the domestic market.

‘Reimbursement Capacity’
A reprieve may come “soon” with the issuance of a domestic bond open to residents, he said, which would revive an instrument the government has not used since the 1980s. “The idea is germinating and the government is pondering whether it should be tax-free or not. The amount could be significant,” Jouahri said.

With the government’s debt projected to continue rising through 2022, more active management of that debt will be needed to mitigate its rising cost, he said. “We have to think of our reimbursement capacity in the future,” Jouahri said.

The pricing secured for a record $3 billion Eurobond sale last week showed that the kingdom’s economic outlook appears positive for rating companies, said Jouahri.
The central bank also:
Revised its inflation projection for 2020 to 0.7% from 0.4%
Said it expected inflation to remain stable in 2021 before accelerating to 1.3% in 2022
Revised its budget deficit to 7.7% from 7.9%
Lowered its current-account deficit to 4.2% from 6%
Forecast tourism receipts to rise to 49.9 billion dirhams in 2021 versus 29 billion in 2020 and 78.8 billion dirhams in 2019
Said government would tap foreign bond market in 2021 and 2022
Projected government’s debt-to-GDP ratio would rise to 79.3% in 2022 versus 76% in 2020 and 65% in 2019
Said banks’ earnings would fall by half in 2020 and urged higher provisions.

Source: Bloomberg Business News