Morocco Holds Key Rate as Inflation Clouds Recovery Prospects

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Morocco’s central bank left its benchmark interest rate at an all-time low of 1.5% amid concerns about how a global spike in oil and food prices could impact the recovery prospects of the tourism-dependent economy.

The decision by Bank Al-Maghrib, announced Tuesday in a statement, was expected and marked its fourth consecutive hold after an easing cycle between March and June 2020. Those cuts were aimed at mitigating the repercussions of the pandemic and two consecutive droughts on the $120 billion economy.

Despite concerns about the inflationary impact of rising global commodity prices, the bank sounded a more optimistic note compared to its last policy meeting in March. It maintained its 2021 growth projects at 5.3%, unchanged from the last meeting, and signaled hope that the 6.3% contraction in gross domestic product last year was starting to bottom out.

Economic recovery “is under way at a steady pace, supported by the easing of restrictions, the accommodative financial conditions and the fiscal stimulus,” the bank said.

After a steep drop in tourism receipts last year, the bank projected a stronger recovery this year and narrowed to 3.8% of GDP its forecast for the kingdom’s current account deficit in 2021. That compares to a 4.5% estimate it gave in March, and 1.5% recorded in 2020.

Inflationary pressures, though, remain a concern for an economy that relies heavily on oil imports. It revised up its 2021 inflation forecast to 1% versus an estimate of 0.9% in March. Inflation had accelerated from 0.1% in the first quarter to 1.7% for the two months of April and May, the bank said.

“Recent acceleration in inflation is likely to continue,” yet would be of a temporary nature, it said.

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