Bloomberg
Souhail Karam
Morocco’s central bank cut the amount of cash lenders are required to hold in reserves for the first time since 2014 while keeping interest rates at a record-low, as the North African nation tries to mitigate deep-seated problems.
The mandatory reserves ratio was halved to 2%, a step that will unlock 11 billion dirhams ($1.1 billion) in liquidity, the central bank said Tuesday in a statement. It also kept the benchmark rate at 2.25% and revised down its annual economic growth and inflation forecasts.
The lower requirement will address “persistent and important” liquidity needs, it said.
The central bank hasn’t budged on rates since 2016 despite taking an increasingly dim view of the country’s economy after a poor harvest and still-weak demand from its key markets in Europe. Meanwhile, consumer prices have recovered from a bout of deflation to exceed projections for the year. Bloomberg Economics had predicted the rate pause will probably last through the second half of the year.
The central bank now projects economic growth for 2019 at 2.7%, down from its previous forecast of 3%, and inflation at 0.4%, compared with 0.6% earlier.
“The economy’s problems are about the hardware, not the software,” Abdelouahed El-Jai, a former central bank director and now an economist at Rabat-based think tank Cerab, said before the decision. “The central bank should lower the rates to boost growth and reduce the cost of financing. The downside, however, outweighs the benefits, especially for savings.”
Under Threat
As political stability frays across the Middle East, Morocco has largely managed to sidestep regional unrest since 2011. But it’s increasingly under threat from protests over jobs, poverty and human rights.
Governor Abdellatif Jouahri waded into the debate this summer, warning that Morocco is struggling to cope with rising social demands and outlined the efforts the central bank had made in trying to boost economic growth and curb unemployment.
The International Monetary Fund has revised down its forecast for Moroccan economic growth to 3% in 2019, unchanged from 2018, and cut its inflation estimate to 0.6% from 1.4%.
