"Considering the expected return of inflation to moderate levels in 2023, the Board decided to maintain the accommodative stance of monetary policy in order to continue to support economic activity and mitigate the impact of the adverse international environment," said a BAM statement, adding that "the Board, thus, decided to keep the policy rate unchanged at 1.50 percent."
During this meeting, the Board carried out an in-depth analysis of the international environment marked by the events related to the war in Ukraine, at a time when the global economic recovery was already facing several challenges, namely the rise in commodity prices, the persistence of disruptions in global production and supply chains as well as strong inflationary pressures.
"While the outcome and the duration of this conflict remain unpredictable, its impact on financial markets, commodity prices, global trade and overall economic activity is already tangible," reads the statement. "These developments will not be without consequences on the national economy, which is also facing particularly adverse weather conditions due to a significant rainfall shortage."
The Board took note of "the extremely high level of uncertainty surrounding the macroeconomic projections prepared by the Bank's staff." These projections show a substantial decline in agricultural value-added and some consolidation of non-agricultural activities, boosted by the significant progress in the vaccination campaign, the easing of sanitary restrictions, and the continuation of monetary stimulus and sectoral support measures.
According to these projections, inflation would sharply accelerate this year, while external balances and public finances would remain relatively resilient.
The Board noted that inflation’s acceleration, started in 2021, is continuing, driven by external pressures related to the surge of energy and food products prices and the increase of inflation in key economic partners.
Thus, after a rate of 1.4 percent in 2021, inflation would attain 4.7 percent in 2022 before returning to 1.9 percent in 2023. Similarly, its underlying component would rise from 1.7 percent to 4.7 percent and then decelerate to 2.6 percent.
The Moroccan Central Bank further noted that the agricultural season would record, due to particularly adverse weather conditions, a cereal production of around 25 million quintals (MQx), after 103.2 MQx a year earlier.
Agricultural value-added is thus expected to fall by 19.8 percent, reducing economic growth to 0.7 percent in 2022 after a rebound that would have reached 7.3 percent in 2021. In 2023, assuming an average harvest of 75 MQx, agricultural value-added would increase by 17 percent, bringing growth to 4.6 percent. Non-agricultural activities would gradually consolidate, with a 3 percent increase in their value added in 2022 and 2023.
The current account deficit, mainly owing to the run-up in commodity prices, is expected to widen to 5.5% of GDP in 2022, after 2.6% in 2021, before easing to 3.7% in 2023.
Imports are expected to rise by 14.9% in 2022 as a result of the increase in the energy bill and the rise in purchases of agricultural and food products and consumer goods. In 2023, the increase would be limited to 1.1%, due in particular to the expected reduction in the energy bill.
At the same time, exports are expected to improve by 12.5% in 2022 and 3.4% in 2023, driven mainly by increased sales of automotive products and higher sales of phosphates and derivatives in 2022.
While remaining below pre-crisis levels, travel receipts are expected to recover gradually, rising from 34.3 billion dirhams in 2021 to 47 billion dirhams in 2022 and 70.9 billion dirhams in 2023.
Remittances from Moroccans living abroad should gradually return to their pre-crisis level, reaching 79.3 billion dirhams in 2022 and 70.8 billion dirhams in 2023, after an exceptional level of 93.3 billion dirhams in 2021.
As for foreign direct investment (FDI), "receipts would average 3 percent of GDP in 2022 and 3.5 percent in 2023," BAM says.
Overall, and taking account of the expected Treasury’s external debt, official reserve assets would hover around 342.8 billion dirhams at end-2022 and 347.3 billion at end-2023, thereby covering around 6 and a half months of imports of goods and services.
In terms of monetary conditions, the real effective exchange rate would depreciate by 1.3 percent in 2022 and in 2023, reflecting a lower level of domestic inflation compared to trading partners and competitors.
As for lending rates, they rose by 9 basis points to an average of 4.44 percent in the fourth quarter of 2021, but they wound up the year 2021 as a whole down by 16 basis points, following the 45 basis point drop in 2020.
Banks’ liquidity needs decreased to 69.9 billion dirhams as a weekly average in the fourth quarter in conjunction with the rise in foreign exchange reserves, but should increase to 75.1 billion in 2022 and 88.3 billion at end-2023, driven by the growth of currency in circulation.
Bank credit to the non-financial sector is expected to maintain a moderate growth of around 4 percent in 2022 and 2023.
On the public finance front, despite the substantial rise in subsidy costs of butane gas and wheat, fiscal deficit is expected to stabilize at 6.3 percent of GDP in 2022, as a result of an exceptional mobilization of resources through in particular specific funding mechanisms and monopoly revenues.
In 2023, it would narrow to 5.9 percent of GDP, mainly in anticipation of improved tax revenues.
Finally, in view of the strong uncertainties surrounding the geopolitical developments relating to the war in Ukraine and their implications both internationally and domestically, Bank Al-Maghrib will continue to closely monitor the economic and financial situation and will regularly update its projections and analyses.