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Rabat – Morocco’s central bank, Bank Al-Maghrib (BAM), and the Higher Commission of Planning (HCP) concluded that the lingering inflationary pressures are no longer only caused by external exterior factors, but are also triggered by domestic conditions, including the drop in agricultural yield.
Reports now suggest that the HCP and BAM’s conclusions are creating a wedge between the two institutions and the government, with Morocco’s Culture Minister appearing to reject the conclusions in remarks made on Monday.
Mohamed Mehdi Bensaid described the two institutions’ reports as contradictory, stressing: “Both institutions use different economic models, while the government relies on a different model.”
As he made his case in defense of the government’s take on the state of the Moroccan economy, the minister especially took aim at the head of HCP, Ahmed Lahlimi, whose statements he insisted do not represent “absolute truth.”
Bensaid’s remarks came one day after Lahlimi said that, contrary to the prevailing opinion, inflation in Morocco is no longer an imported phenomenon; it is rather caused by local market conditions.
“Inflation should be considered as a structural and domestic truth, and we should adapt to it, much like drought,” Lahlimi explained, adding that it is caused by a “shortage in production or supply, and not demand.”
Noting food price inflation, Lahlimi said that “especially fruits and vegetables are locally produced in Morocco.”
Inflation in Morocco
After hitting a three-decade high in 2022 at 6.6%, price inflation in Morocco is showing no signs of recovery in the first two months of 2023, rising by 10% year-on-year in February, five times the recommended 2% average.
The high rate is mainly triggered by inflation in food prices: food prices rose at an annual pace of 18.4% at the end of February, while non-food products rose at 3.7%.
As rising food prices would be detrimental to the national purchasing power, Morocco’s central bank intervened to raise the benchmark interest rates, a conventional mechanism for central banks to counter inflation.
Raising interest rates makes loans more expensive, which leads to a drop in consumer demand. The restored balance in demand and offer typically lower prices.
Over the past two years, BAM hiked the benchmark interest rates three times — from 1.5% to 3%, marking the most aggressive monetary policy tightening since the bank became the one in charge of Morocco’s monetary policy in 2006.
Raising interest rates comes with a list of side effects for the economy, however: lower spending and investments slow down the economy and impact growth rates.
A wedge between Morocco’s economy watchdogs and government?
Slow economic growth equally means higher unemployment rates, which spells bad news for any government.
Recent local media reports indicate that Aziz Akhannouch, the head of Morocco’s market-oriented government, is not thrilled about BAM’s aggressive monetary policy and is even calling for a royal arbitration.
Reports claim that Akhannouch is concerned about how the tightening of monetary policies could affect his government’s performance, and considered inflation to be caused by external factors.
The case was reportedly brought before King Mohammed VI amid the disagreement between the head of government and the Central Bank Governor Abdellatif Jouahiri. But Akhannouch has strongly denied reports of any such royal arbitration.
Suspicions of a disagreement between the government and the central bank were further heightened after the bank announced on March 21 its decision to raise interest rates.
Following the announcement, Jouahiri was absent from the usual press conference that follows BAM’s quarterly meeting, and the bank’s statement was shortly withdrawn from its website before being uploaded the next day unchanged.
Many observers considered the incident as proof that the central bank is an independent public institution that does not sway to the government’s ever-changing political agendas.
