Inflation: BAM tightens its monetary policy

In an attempt to curb galloping inflation, the Board of Bank Al-Maghrib (BAM) increased the key rate by 50 basis points to 2%. The decision was made during the meeting held on Tuesday, September 27. Under these conditions, going into debt will become more expensive for all economic players. This should result in a decrease in demand for goods and services and subsequently in prices. This is the normal or ideal scenario, except that in Morocco, inflation is mainly imported, the country sourcing energy and food products, especially cereals, from abroad. With this increase, the central bank wants to “prevent any de-anchoring of inflation expectations and ensure the conditions for a rapid return to levels in line with the objective of price stability”. Bank Al-Maghrib intends to closely monitor the economic situation, at the national and international levels, and in particular the evolution of inflationary pressures. A few weeks before the presentation of the 2023 Appropriations Bill, the picture drawn of the economic situation is far from encouraging: “the economy continues to suffer from this unfavorable external environment and of the repercussions of a particularly severe drought, with a sharp deceleration in growth and a sharp acceleration in inflation ”, the central bank said. Inflation reached 8% in August after 7.7% in July, being mainly driven by the rise in the price of food products and of fuels and lubricants. “The available data do point to an increasingly wide dissemination of the price increase. Indeed, of the 116 sections of goods and services that make up the reference basket of the consumer price index, 60.3% experienced an increase of more than 2% in August versus 42.2% in January”, explains BAM who forecasts the acceleration of inflation to 6.3% over the whole year versus 1.4% in 2021. The return to a “more suitable” rate is expected next year, namely 2.4%.

Being pessimistic, the central bank has revised downwards its growth forecasts for this year: 0.8% versus 7.9% of GDP in 2021. This is a very low level which is explained by the 14.7% drop in agricultural value added and by a 3.4% deceleration in non-agricultural activities. In 2023, growth should accelerate to 3.6% under the effect of an 11.9%. increase in agricultural value added. On the other hand, the non-agricultural sector should not slow down, settling at 2.5%! The Board also expects a budget deficit of 5.5% versus 5.9% in 2021.

Khadija MASMOUDI