Following the unexpected drop in the key rate to 2.75% last June, financial investors are expecting a further easing of monetary policy by the Board of Bank Al-Maghrib (BAM), whose third quarterly meeting of 2024 is scheduled for next Tuesday.
According to a survey conducted by Attijari Global Research (AGR) in its recent “research report strategy”, the probability of a 25 basis point (bps) reduction in the key rate is estimated at 83% by a panel of 35 major investors in the Moroccan market.
This vision is emerging in a context marked by a certain easing of inflationary pressures, although economic uncertainties persist.
Thus, investors agree that a reduction in the key rate would provide “welcome” support to the Moroccan economy, which is facing various challenges, both internal and external, particularly related to agricultural production and fluctuations in international energy markets.
Down -25 bps vs status quo
The AGR survey reveals that all categories of investors surveyed, whether local institutions, key players or foreign investors, mostly consider that BAM should opt for a reduction in the key rate. Local institutional investors attribute an 85% probability to a 25 bps reduction, while foreign investors are 100% unanimous in favor of this option.
This possible reduction comes in an international context where similar measures have been taken. After the European Central Bank (ECB), which reduced its key rate to 3.5% on September 12, the American Federal Reserve (Fed) also announced a reduction in its interest rates of 0.5 percentage points on September 18.
This decision aims to address falling inflation while supporting employment, a dynamic that is also likely to influence BAM’s choices in a context where central banks are adopting more flexible monetary policies.
For its part, BMCE Capital Global Research (BKGR) predicts that BAM will maintain its monetary policy unchanged. An anticipation that stems from a desire to observe more closely the effects of the decompensation of butane gas on inflation.
According to a survey conducted by BKGR among Moroccan institutional investors, 71.4% of participants consider the current monetary policy to be adequate. However, opinions regarding the direction to take at the next Council are divided: 50% expect a status quo while the other half envisages a 25 basis point cut in the key rate.
Economic context and uncertainties
The current economic landscape remains characterized by major structural issues, generating significant repercussions on various key sectors.
According to the recent BAM report entitled “Climate Finance Development Strategy for 2030: Findings, Vision and Strategy”, the transition of the Moroccan economy requires deep reforms in order to promote more inclusive and sustainable growth.
This transformation particularly involves the optimization of financing mechanisms dedicated to small and medium-sized enterprises (SMEs), a crucial aspect in the context of monetary and fiscal guidelines. The agricultural sector, vital for the Moroccan economy, continues to suffer from drought, which weighs considerably on growth forecasts for 2024.
Furthermore, tensions on international energy and raw materials markets continue to put pressure on companies’ production costs. This situation could therefore justify a further reduction in rates in order to encourage domestic investment and consumption.
The challenges of monetary policy
Monetary policy decisions taken by Bank Al-Maghrib are based on an in-depth analysis of the medium-term outlook for growth and inflation.
The potential reduction in the policy rate envisaged aims to ease the financial burden on households and businesses facing high financing costs and pressure on purchasing power. However, BAM’s options for maneuver remain constrained by macroeconomic balances and budgetary challenges.
The resolutions of this body will be closely monitored during the preparation of the draft finance law for 2025, which will have to integrate future economic and financial orientations, particularly with regard to the budget deficit and public investments.
In short, financial market expectations and economic trends and dynamics seem to converge towards a reduction in the key rate, which would constitute an appropriate response to current economic challenges, while adopting a prudent approach in the long term. It remains to be seen whether Bank Al-Maghrib will confirm these forecasts at its expected Council meeting next Tuesday.
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