Morocco Cuts Reserve Ratio for Banks But Doesn't Budge on Rates
Morocco Cuts Reserve Ratio for Banks But Doesn't Budge on Rates
(Bloomberg) -- Morocco’s central bank cut the amount of cash lenders are required to hold in reserves for the first time since 2014 while keeping interest rates at a record-low, as the North African nation tries to mitigate deep-seated problems.
The mandatory reserves ratio was halved to 2%, a step that will unlock 11 billion dirhams ($1.1 billion) in liquidity, the central bank said Tuesday in a statement. It also kept the benchmark rate at 2.25% and revised down its annual economic growth and inflation forecasts.
The lower requirement will address “persistent and important” liquidity needs, it said.
The central bank hasn’t budged on rates since 2016 despite taking an increasingly dim view of the country’s economy after a poor harvest and still-weak demand from its key markets in Europe. Meanwhile, consumer prices have recovered from a bout of deflation to exceed projections for the year. Bloomberg Economics had predicted the rate pause will probably last through the second half of the year.
The central bank now projects economic growth for 2019 at 2.7%, down from its previous forecast of 3%, and inflation at 0.4%, compared with 0.6% earlier.
“The economy’s problems are about the hardware, not the software,” Abdelouahed El-Jai, a former central bank director and now an economist at Rabat-based think tank Cerab, said before the decision. “The central bank should lower the rates to boost growth and reduce the cost of financing. The downside, however, outweighs the benefits, especially for savings.”
Under Threat
As political stability frays across the Middle East, Morocco has largely managed to sidestep regional unrest since 2011. But it’s increasingly under threat from protests over jobs, poverty and human rights.
Governor Abdellatif Jouahri waded into the debate this summer, warning that Morocco is struggling to cope with rising social demands and outlined the efforts the central bank had made in trying to boost economic growth and curb unemployment.
The International Monetary Fund has revised down its forecast for Moroccan economic growth to 3% in 2019, unchanged from 2018, and cut its inflation estimate to 0.6% from 1.4%.
Price growth swung from a five-year high in 2018 to below zero in the first quarter. It’s since picked picked up to reach an annual 0.8% in August. The central bank said Tuesday it expects it to accelerate to 1.2% in 2020.
| What Our Economists Say... |
|---|
“We expect the Moroccan central bank to keep its policy rate at a record-low 2.25% in the second half of 2019 as rising food prices push up inflation after a brief period of deflation.” --Mark Bohlund, Africa economist Click here to view the piece. |
Signaling a loss of patience with a divided government coalition, King Mohammed has asked his prime minister to propose a cabinet reshuffle in the fall and announced that he would appoint a committee to boost growth in order to better address social challenges, especially youth unemployment.
To tackle renewed grievances by businesses, Finance Minister Mohamed Benchaaboun said in September that the government doubled the pace of this year’s value-added tax reimbursements and cut by over half payment delays for state contracts. It will also inject liquidity in public firms to help them reduce payment delays within the next six months.
“Unfortunately the engine of Moroccan entrepreneurship is broken down,” Salaheddine Mezouar, who heads leading business group CGEM, said at a Sept. 13 conference in Casablanca. “Only a quarter of investment done in the country is by private businesses.”
To contact the reporter on this story: Souhail Karam in Rabat at skaram10@bloomberg.net
To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Michael Gunn, Paul Abelsky
©2019 Bloomberg L.P.