Morocco central bank holds rates, citing inflation prospects

Bloomberg

Morocco’s central bank kept its benchmark interest rate unchanged despite rising inflation that’s prompted a damaging product boycott.
The central bank kept the key rate at 2.25 percent, citing medium-term inflation and growth prospects. Last month the general affairs minister said the economy could withstand annual price growth of as much as 3 percent, above the 2.7 percent reached in April that was near a five-year high.
Spurred by temporary shoc-ks, “inflation is expected to reach 2.4 percent in 2018, before returning to 1.4 percent in 2019,” the central bank said in a statement. The bank had earlier projected annual 2018 inflation at 1.8 percent.
“We plan for the long term,” Bank al-Maghreb Governor Abdellatif Jouahri told reporters. “Inflation is not an issue we tackle on a short term perspective.” He said the central bank projects headline inflation at 1.8 percent from the second quarter of 2018 to the first quarter of 2020.
The government is struggling to find the right policy mix at a time when it wants to lift subsidies, channel the savings to Morocco’s under-developed regions, and gradually liberalise its currency regime. Spending cuts and accelerating inflation both risk fuelling unrest in a nation that has avoided the sweeping upheavals that have battered the economies of other North African and Arab nations.
Jouhari indicated the reforms have started to bring about results. The central bank has not provided any forex liquidity to Moroccan banks since March 20 “because the Moroccan interbank forex market has started to look after itself and find its equilibrium,” he said.
Mounting consumer prices have already sparked a boycott campaign targeting dairy farmers, mineral water companies and fuel distributors.
The social-media-led initiative has prompted the local unit of France’s Danone SA to cut purchases from farmers and lay off workers who don’t have contracts.