Rabat – In a new bid to curtail haywire inflation, Morocco’s central bank, Bank Al-Maghrib (BAM) has announced raising interest rates by 50 basis points to 2.5%.
This is the second interest rate hike in less than a year, as BAM announced the first raise in September following the bank’s third quarterly meeting this year.
Raising interest rates is the textbook solution to slow down inflation; higher interest rates make loans more expensive, prompting consumers to spend less, hence restoring demand-and-offer balance within a market.
Following their quarterly meeting on Tuesday, Bank Al-Maghrib issued a press release noting that inflation remains overall “very high” despite “signs of deacceleration.” This has led central banks around the world to continue tightening monetary policies, the statement explained.
BAM’s note concluded that the outlook for the global economy continues to “deteriorate with a sharp deceleration in growth expected in 2023.”
It added that the Moroccan central bank expects inflation to average an annual rate of a staggering 6.6% in 2022, up from 1.4% in 2021, and more than triple the recommended rate of 2%. The dramatic rise in inflation is mainly due to price shocks in the worldwide food and energy markets.
Price shock in the international market is gradually easing as energy prices are showing signs of recovery. As of date, however, they remain at record-high levels because of the stalemate in Ukraine.
While tighter monetary policies are widely considered in economic theory as a viable option to weather down inflation, the measure could have a devastating effect on economic growth. Expensive loans mean a slower flow of investments, translating into slow growth in the labor market, which negatively affects unemployment.
In Morocco, the measure could also worsen growth in the already-stagnating real estate market.
BAM expects national economic growth to drop to 1.1% from 7.9% in 2021, with the deacceleration being the direct result of a 15% decline in agriculture activities amid severe drought.
But the Moroccan central bank still expects the national economy to grow by 3% in 2023. According to BAM, this notable improvement will be triggered by an expected 7% increase in agricultural added value.
Read Also: Morocco’s Central Bank Hikes Interest Rates for First Time in 14 Years
