Rabat – Between 28 April and 7 July, Moroccan banks foreign currency assets increased by $1.6 billion ahead of the previously expected announcement of Dirham Liberalization, according to Fitch.
On the eve of the liberalization of the dirham, the Moroccan market witnessed a severe rush on currency stocks, led by fears of an unprecedented depreciation. Trading rooms entered into a frenzy as commercial bank’s “speculations” against the dirham went wild.
These worries drained Morocco’s net international reserves by 14.3 percent in US dollar terms at July 7 from their end-April level, reaching $20.9 billion, their lowest level in nearly two years.
Last June, Morocco’s foreign exchange reserves were at their 24-month low, barely exceeding MAD 206 billion.
During this period, “Moroccan banks increased their foreign-currency assets by 56 percent, equivalent to USD 1.6 billion, between April 28 and July 7” by selling hedging instruments for companies fearing the dirham depreciation, revealed Fitch in its latest note published Thursday entitled “Morocco Reserve Fall Unlikely to Prompt FX Policy Shift.”
A possible, but slow recovery
Amid the rush, Bank Al Maghrib made an unprecedented decision to stop feeding currencies to bank, blocking trading operations. Later the government announced the delay of the launch of the dirham liberalization reform.
The rush and the delay questioned the Moroccan Executive capacity to sustain such a drastic move in its exchange rate regime. But for Fitch Ratings, this will not impact the decision to launch the reform, echoing the expectations of the Moroccan Executive, the IMF, and other rating agencies.
Furthermore, the agency still expects an eventual widening of the floating bands of the dirham, despite falling foreign exchange reserves in the second quarter of 2017.
“Reserves have now bottomed out and we expect the authorities to implement gradual alterations to the foreign exchange framework while trying to achieve a more robust anchoring of policy expectations by fine-tuning their communication strategy,” explain the agency.
For Fitch, the gradual disbursement of foreign financing and the stricter review of foreign exchange transactions should support a partial recovery of the reserve-import ratio.
As for the reserve losses related to hedging strategies conducted by commercial back, they “may be gradually reversed but the contribution of higher other balance-of-payments outflows could be more enduring.”
Since then, part of the decline in foreign exchange reserves has been offset by summer tourism receipts and lower pressures on FDI flows. Thus, by September 13, the date of the latest available statistics, these reserves amounted to MAD 220 billion, up by MAD 14 billion over two months.
That said, the decline reached 11.8 percent for 2017. This figure provides Morocco with five months and 14 days of imports of goods and services, which represents a coverage rate well short of the seven months and 12 days recorded in the same period in 2016.