Rabat - At the opening of the trading rooms this Monday morning, all hands are on deck, anticipating the first hours of the introduction of the dirham flexible exchange rate system.
Rabat – At the opening of the trading rooms this Monday morning, all hands are on deck, anticipating the first hours of the introduction of the dirham flexible exchange rate system.
As it stepped into the first phase of a promised gradual transition, Bank Al Maghrib sets a band of MAD 8.9969-9.4524 to the US Dollar.
By the first hours of this Monday morning, the dirham was trading on the market at around 9.2380-2430, according to the data of the Casablanca Stock Exchange. This new rate is one level closer to the top of the MAD/USD ratio.
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This move to widen the dirham’s trading band is part of Morocco’s plan to liberalize the economy and turn the kingdom into a financial hub. Adjusting the dirham’s peg has been a highly anticipated move for years, but the reform was postponed in 2017 after fears of a devaluation prompted a frenzy rush on currency, causing a plunge in Bank Al Maghrib’s foreign reserves.
This time however, the Moroccan Central Bank in collaboration with the Ministry of Finance decided to adopt a different approach. In hopes to reduce the opportunity for mischief, trading and speculation, they announced the plan, to take effect on Monday, on Friday night.
On the eve of the implementation of the reform, expert analysts and bankers reassured that the introduction of this new flexible system could only result in a slight depreciation on the short term.
While the dirham might become more vulnerable if oil and gas, and overall commodity prices rise, Bank Al Maghrib’s well stocked foreign reserves will act as a cushion mattress in case of a sudden devaluation. These stocks cover 5 months and 24 days of imports, allowing a smooth transition into the new system.
Bank Al Maghrib will also intervene through regular auctions for the dollar, and other currencies when it sees the need, according to a circular published over the weekend.
This new reform will also help Morocco boost its exports, tourism revenues, as well as Moroccans living abroad remittances, which constitutes Morocco’s main source of foreign currency.
As of this Monday, the dirham’s fluctuation band widened from 0.3 percent to 2.5 percent, allowing a 5 percent range in total.