Morocco holds key rate despite nation’s dim economic outlook

Bloomberg

Morocco’s central bank held its benchmark rate steady, refusing to budge even as the country’s economic prospects took a turn for worse. The decision, which Bank Al-Maghrib said was link-ed to bullish inflation projections and monetary conditions, came even as government pres-ses ahead with measures that will inject billions of dirhams into the economy — steps that also are impeding an easing.
The bank’s board said “inflation was low during the first four months of the year, with year-on-year decreases in the consumer price index by 0.1 percent on average.” That should keep annual inflation at 0.6 percent in 2019, before it’s expected to accelerate to 1.2 percent in 2020.
Inflation has been a key concern for the North African kingdom that’s the region’s largest energy importer. The challenge is amplified by the broadest wage hike since 2011 that’s set to kick in fully next month.
“On paper, Bank Al-Maghrib should cut the rate,” Abdelouahed El-Jai, a former central bank director and now an economist at Rabat-based think-tank Cerab, said before the decision. “But it shouldn’t be done after the government took steps that will boost demand. The central bank will want to see the effects of these measures on inflation before considering a rate move, probably in six to 12 months.”
The central bank hasn’t cut rates since 2016 despite taking an increasingly negative view of the country’s $115 billion economy, slashing this year’s projections for growth and inflation.