Morocco Cuts Interest Rate for the First Time Since 2014

  • Benchmark interest rate cut 25 basis points to 2.25 percent
  • Central bank lowers 2016 GDP growth forecast to 1 percent

The Moroccan central bank cut its benchmark interest rate on Tuesday for the first time since December 2014 in an attempt to stimulate an economy hurt by weak cereal production and non-agriculture activity.

Policy makers reduced the key rate by 25 basis points to 2.25 percent, Bank Al-Maghrib said in a statement. The central bank also lowered its growth forecast for this year to 1 percent from 3 percent. The median estimate of five economists surveyed by Bloomberg is for 2.5 percent expansion.

The rate cut took into account “the central inflation projection, weak non-agricultural growth, the continued reduction of the budget deficit and the strengthening of foreign exchange reserves," the central bank said. The bank also revised down its inflation forecast for 2016 to 0.5 percent, compared with 1.6 percent last year.

Morocco has avoided much of the unrest that has roiled neighboring countries after the Arab Spring uprisings. Political stability, supported by the plunge in oil prices, has allowed the North African nation to undertake measures to shore up public finances even as aid from Arab Gulf countries declined.

Exchange Rate

Central bank Governor Abdellatif Jouahri declined to give a time-frame for the country’s transition to a flexible exchange rate. Morocco is following the International Monetary Fund process and the bank is working with the country’s business lobby as it seeks to protect small businesses from the change, Jouahri told reporters after the rate decision.

Morocco said last year it will adopt a flexible exchange rate to attract more investment and turn itself into a regional financial hub.

The budget deficit is expected at 3.7 percent of economic output in 2016, and 3.1 percent in 2017, the central bank said.

The benchmark MADEX Free Float Index of stocks gained after the rate decision, closing 1.6 percent higher at 7,807.56 in Casablanca.

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