While Bank Al-Maghrib’s speech at its last meeting has become more Hawkish in acknowledging the “internalization” of the drivers of inflation, the Bank has chosen not to anticipate rate hikes in 2023 to limit the negative impact that this choice would have on growth.
“We expect high inflation to prompt BAM to continue to tighten monetary policy in 2023, raising its policy rate by 50 basis points at its next meeting on March 21,” write the Fitch Solutions analysts for whom inflation should be 4.3% in 2023 ( once morest a forecast of 3.9% for BAM).
Rate trajectory in 2023
In addition, Fitch Solutions estimates that the Central Bank will increase its key rate by a cumulative 100 basis points, bringing it to 3.50% in June 2023 and maintaining it until the end of the year.
“This reflects our belief that BAM will need to continue raising interest rates to keep inflation expectations anchored. Although BAM’s survey shows that the net percentage of companies expecting price increases over the next 3 months has declined, it remains high compared to historical levels,” justifies the agency.
Similarly, BAM will also raise its key rate to support its managed currency in an environment where the European Central Bank (ECB) is more Hawkish.
The growth dilemma
For Fitch, there is a risk that BAM will choose to be more favorable to economic growth. At the last meeting, the Bank lowered its economic growth forecast for 2023 from 3.6% at its September meeting to 3.2%.
“We interpret the forecast revision as a BAM acknowledging the potential negative impact of a rate hike on economic activity. says Fitch.
As such, there is a risk that BAM’s fears of an excessive economic slowdown may prompt it to maintain looser financial conditions in order to support economic growth. And so that would imply a less marked rise in rates at the next meetings.
