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Rabat – BMI Research is pinning the blame for the delay of the dirham liberalization reform on commercial banks. In its latest report, the Fitch Group company stresses that far from the devaluation speculations, the Moroccan dirham is set to sail on a “smooth and gradual transition towards a free float.”
The Moroccan dirham has been the star of local news these past months. Amid talks about a currency liberalization reform, speculations about a sharp depreciation of the dirham have run wild. Despite the constant reassurance of Bank Al-Maghrib, which presented proof of a strong economic fundamentals able to sustain a flexible exchange rate, the mistrust of commercial banks resulted in a rush on currency, draining Morocco’s foreign reserves starting in April 2017.
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Also Read: All You Should Know About ‘Floating Dirham’
In its economic analysis, entitled “Fears Of Disorderly Depreciation Overblown,” BMI Research stresses the risks of speculation facing the planned reform, and its dire consequences. Not only were the Moroccan authorities forced to delay the first phase of the dirham liberalization reform due to these unfounded fears, the ensuing panic also sparked a “sharp fall in foreign reserves since April 2017.”
Between April and June, “reserves fell by 12.4 percent, from USD 24.4 billion to USD 21.4 billion, before stabilising in late July,” notes the company, adding that fears that the perpetuation of this rush on currency would case a further drop in reserves pushed authorities to completely delay the reform for the time being.
Sparked by fears of a similar scenario to that of Egypt, the speculations could have serious consequences, according to BMI Research, which states that “a significant loss of reserves would have impaired the central bank’s ability to manage the dirham after allowing greater [fluctuation bonds].”
However, the delay of the reform and the drawdown in net international reserves “does not affect BMI’s confident outlook for Morocco to successfully undertake a gradual transition towards a more flexible exchange rate regime.”
For BMI Research, the Moroccan central bank has been successful at managing the Dirham peg over the past few years, backed by “the robustness of the Moroccan economy and positive investor sentiment, sharply contrasting with other North African economies which have been forced to allow their currencies to depreciate against their respective baskets.”
These factors, combined with a real effective exchange rate broadly in line with its 10-year average, suggest that the currency is not particularly overvalued, and BMI Research “maintains its view that Morocco is in a favourable position to gradually move towards a more flexible exchange rate.”
The company stresses that with the Moroccan authorities set to allow only modest fluctuations over the coming months, it sees “limited risks stemming from the liberalisation of the exchange rate regime.”
Not only are speculations about a possible sharp devaluation unfounded, according to BMI, on the contrary, the dirham liberalization reform is set to boost the Moroccan economy.
“Greater exchange rate flexibility will enable the Moroccan government to further reduce capital controls, which will enhance Morocco’s status as the preferred investor destination in North Africa,” explains the report.
The reform is “also consistent with Morocco’s ambitions to increase trade links with African economies, in an effort to become a manufacturing and exporting hub between Europe and Africa.”
“A reduced dependence of the dirham to the euro’s fate will increase flexibility and reliance to external shocks,” concludes BMI.
