The first Board meeting of Bank Al-Maghrib for the year 2023 takes place in a particular national and international context marked by the persistence of a high level of inflation of 8.9% at the end of January, an improvement in the distribution of bank loans, a continued acceleration of the money supply, and favorable growth prospects, underlines CDG Capital Insight in its “Pre-Board of Bank Al-Maghrib Flash”, published on Wednesday 15 March.
After a period of observation, and following the rise of inflation and above all the transmission of the rise in the prices of tradable goods to non-tradable goods, the Board of Bank Al-Maghrib decided, at the at the end of the last two meetings, held on September 27 and December 20, 2022, to raise the key rate (TD), twice in succession, by 50 Pbs, thus bringing it down from 1.50% to 2.50% at end of 2022, recalls CDG Capital Insight.
This decision is essentially aimed at preventing any unanchoring of inflation expectations and ensuring the conditions for a rapid return to levels in line with the objective of price stability, underlines the same source.
For the next BAM Board of Directors, CDG Capital Insight discussed the main factors that will probably push Bank Al-Maghrib to raise its key rate.
Bank liquidity
It thus points out that the liquidity deficit of the banking system, following the decline recorded during the last two months of the year 2022, resumes its rise during the month of January 2023. Thus, the weekly average of the deficit increased to -87.3 billion dirhams (MrdDH) recorded in January 2023 once morest -86.5 billion dirhams a month earlier, i.e. a slight increase of around 800 million dirhams.
This new upward trend is explained by a combined deterioration of three independent factors of bank liquidity. First, a significant drop in official reserve assets of approximately -10.9 billion dirhams, recorded during the months of December 2022 (-6.9 billion DH) and January 2023 (-4 billion DH) to drop to 333 .6 billion DH. The second factor relates to the continued strong increase in fiduciary circulation, which increased by MAD 9 billion over the same period to stand at MAD 357 billion, i.e. MAD +7 billion in December 2022 and MAD +2 billion in January 2023.
The third factor concerns net claims on the central administration which, following a decline recorded over the period July-November 2022, increased considerably over the last two months: from 21 billion dirhams to 316 billion dirhams, with +19 billion dirhams in December 2022 and +2 MDH the month following.
Under these conditions, Bank Al-Maghrib continued to fill the deficit of the banking system, through its interventions with banks, with a weekly average of approximately 101.9 billion DH recorded in January 2023 once morest 103.3 billion DH the month previous.
Interbank TMP
The average outstanding amount of BAM injections during the month of January is made up of: 56.6 billion in the form of 7-day advances, 21.5 billion through long-term repo transactions and 23.8 billion in the context of long-term guaranteed loans, according to the “Flash pre-Board of Bank Al-Maghrib”.
CDG Capital Insight would like to point out that since the outbreak of the Covid-19 crisis and in order to avoid any kind of upward slippage in the TMP (Weighted Average Rate), the central bank continues to serve all of the banks’ demand during 7-day tenders, thus recording surpluses compared to the liquidity deficit of the banking system, the amount of which was around 14.6 billion dirhams during the month of January 2023.
Similarly, continues the same source, BAM decided, from the second week of January 2023, to use a structural instrument of monetary policy, in this case open market operations, through the weekly organization, every Monday of the week, of a call for tenders for the purchase of Treasury bonds on the secondary market, whose maturity is less than one year. BAM has set a ceiling of 25 billion dirhams for these operations, the outstanding amount of which as of March 13, 2023 amounts to 15.8 billion dirhams.
In this context, CDG Capital Insight indicates that the interbank TMP, representing the operational target of monetary policy, evolved at levels almost identical to the new key rate (2.5%).
Debit and credit rates
In this study, prepared by Ahmed Zhani, Chief Economist at CDG Capital, it is also emphasized that the next Board of BAM is called upon, before taking a decision on the key rate, to take into account the evolution of the Global Weighted Average Rate Debtor (TMPGD). A rate which recorded an increase of 26 Pbs in the 4th quarter of 2022 to reach 4.50%. This increase covers an increase of 39 Pbs in the rates matching loans to individuals at 5.72% and of 26 Pbs at 4.30% for those intended for businesses.
The increase in the rates associated with loans granted to companies stems from an increase of 24 Pbs in those of equipment loans and of 26 Pbs in those of cash facilities, still explains CDG Capital Insight.
By company size, the rates increased by 10 Pbs for VSMEs (Very Small and Medium Enterprises) and by 32 Pbs for large companies.
At the same time, the 39 bp increase in loans granted to individuals is the result of a 13 bp increase for housing loans compared to only 1 bp for consumer loans.
With regard to bank deposit rates, they recorded respective increases of 46 bps for 1-year term deposits once morest only 20 bps for those at 6 months.
In summary, CDG Capital Insight believes that the transmission of the two increases in the key rate, of 100 bps in the 4th quarter of 2022, to the lending and deposit rates remains partial. Similarly, the expected impact on the distribution of credits (credit channel) has not yet been identified.
Continued rise in inflation
CDG Capital Insight also indicates that Morocco, like almost the majority of countries at the international level, is recording an upward slippage in inflation (8.9% at the end of January 2023). This surge is due, among other things, to the sharp rise in the prices of raw materials and energy at the international level.
Similarly, the next BAM Board takes place in an international context marked by the continued tightening of monetary policies, adopted by almost the majority of central banks.
Taking into account all of these developments and prospects, CDG Capital believes that it is more likely that the Board of Bank Al-Maghrib will increase the key rate for the third consecutive time, with a further planned increase of 50 Pbs, bringing it down to 3%.
