Central Bank Keeps Key Rate Unchanged at 2.25%
The Board of Bank Al Maghrib (BAM-central bank) decided to keep the key rate unchanged at 2.25%, following its 2nd quarterly meeting for the year 2019, held on Tuesday in Rabat, the Bank said in a statement.
Based on these assessments, particularly those pertaining to medium-term forecasts of inflation, growth, external accounts, monetary conditions and public finance, the Board considered that the current level of the key rate at 2.25% remains appropriate and decided to keep it unchanged, the Bank said.
The Board noted that inflation was low during the first four months of the year, with a year-on-year decrease in the consumer price index by 0.1% on average, explaining that this decrease has resulted from the lower prices of volatile food and, to a lesser extent, of oil and lubricants.
Such factors will impact inflation evolution throughout 2019, reducing it from 1.9 percent in 2018 to 0.6% , it added.
In 2020, inflation would accelerate to 1.2%, driven by its core component which, mainly owing to the expected upturn in domestic demand, would stand at 1.5%, as against the 0.8% rate forecast in 2019 and the 1.1% rate recorded in 2018, the Bank noted.
Provisional data from the annual national accounts show that growth slowed down to 3% in 2018 from 4.2% a year earlier, covering a deceleration from 15.2% to 4% in the agricultural sector and from 2.9% to 2.6% in non-agricultural activities, the same source said.
In terms of prospects, added value of the latter should improve, according to Bank Al-Maghrib's forecasts, by 3.6% in 2019 and 3.9% in 2020.
On the other hand, taking into account a cereal production estimated by the Ministry of Agriculture at 61 million quintals, agricultural value added would decline by 3.8% in 2019 before increasing by 6 percent in 2020, assuming an average crop year, it said, adding that, under these conditions, overall growth would stand at 2.8% in 2019 and speed up to 4% in 2020.
In the labor market, the central bank stressed that domestic economy created, between Q1-2018 and Q1-2019, 15 thousand jobs, as against 116 thousand a year earlier, noting that agriculture lost 152 thousand jobs, while non-agricultural sectors created 167 thousand jobs, almost 40% of which in the retail trade.
Taking into account a 0.4% drop in the labor force, the participation rate fell by 0.9 percentage points to 46.2% and unemployment rate fell from 10.5 to 10% nationally, and from 15.6 to 14.5% in urban areas, it said.
Regarding external accounts, the Bank underlined that exports continue to perform well, and increased by 4.5% at end-April, largely boosted by the sales of phosphates and derivatives, noting that, at the same time, imports rose by 4.7%, largely driven by higher purchases of capital goods and semi-finished products.
As for travel receipts, they improved by 1.5%, while expatriates' remittances declined by 2.9%.
In terms of prospects, exports’ momentum is expected to continue over the medium term, with a particular rebound in automotive sales in 2020, further to the launch of the PSA plant production, expected in the second half of 2019, while, on the opposite, imports are expected to slow down, due to the forecast declines in the energy bill and in the pace of capital goods acquisition.
Travel receipts and transfers of expatriates' remittances are forecast to improve at the end of 2019 and strengthen in 2020.
Taking into account these developments and assuming GCC grants of 2 billion dirhams in 2019 and 1.8 billion in 2020, the current account deficit would drop from 5.5% of GDP in 2018 to 4.5% in 2019 and then 3.1% in 2020, the Bank explained.
Regarding financial transactions, FDI receipts would hover around 3.4% of GDP, while loan inflows would rise significantly, with two expected borrowings of the Treasury from international markets, one in 2019 and the other in 2020.
Under these conditions, the Central Bank said that net international reserves would reach 239 billion dirhams at the end of 2019 and 234.5 billion at the end of 2020, continuing to cover slightly over 5 months of imports of goods and services.
As concerns monetary conditions, the BAM said the real effective exchange rate (REER) is expected to be slightly higher in 2019, as the inflation gap would mitigate the forecast nominal rise of the dirham, noting that, in 2020, the REER would experience a slight depreciation, a result of a quasi-stability, in nominal terms, and of lower inflation gap.
As for lending rates, they recorded, in the first quarter of 2019, a quarterly decline by 17 basis points to 4.89 percent on average, which mainly benefited companies, particularly VSMEs, it said, adding that, despite this easing, bank loans to the non-financial sector rose moderately at end-April, by 3.3% overall and 1.3% for the private sector, and are expected to rise by 3.5% by the end of the year and by 4.3% at end-2020, in line with the expected improvement in non-agricultural activities.
With regard to public finance, the Bank said budget execution in the first five months of the year resulted in a deficit reduction to 18.5 billion dirhams. Current revenue increased by 6.2 percent, mainly reflecting a significant rise of income taxes and domestic consumption taxes, as well as to the collection of the social solidarity contribution on profits.
However, VAT receipts were down, impacted by higher repayments, which reached 5.1 billion dirhams, as against 2.6 billion one year earlier. Besides, overall spending rose by 2.6%, driven by rising expenses of "other goods and services" and of investment, the Bank noted.
Under these conditions, and taking into account the impact of the agreement signed on April 25 as part of the social dialogue, the budget deficit, excluding privatization, is forecast by Bank Al-Maghrib to increase from 3.7% of GDP in 2018 to 4.1% in 2019, before improving to 3.8% in 2020, the Bank concluded.
During this meeting, the BAM reviewed and approved the Annual Report on the economic, monetary and financial situation of the country, as well as on the Bank's activities for the year 2018. The Board also analyzed recent economic developments as well as the macroeconomic forecasts prepared by the Bank for the next eight quarters.
MAP 18 June 2019