Morocco raised its key interest rate for the second consecutive meeting in a bid to quell inflation that’s at a three-decade high and has sparked rare protests in the North African kingdom.
(Bloomberg) — Morocco raised its key interest rate for the second consecutive meeting in a bid to quell inflation that’s at a three-decade high and has sparked rare protests in the North African kingdom.
The central bank hiked the benchmark rate by 50 basis points to 2.5%, according to a statement Tuesday after its latest quarterly meeting. It’s only the second tightening of monetary policy since 2008, after an increase in September, and comes as Morocco grapples with surging prices caused by local drought and Russia’s invasion of Ukraine.
The anxiety over inflation that’s gripping Morocco risks overshadowing public euphoria surrounding its historic run at the soccer World Cup.
Morocco beat some of Europe’s best soccer teams to get as far as the semi-final in Qatar, a first for a Middle Eastern or African side, capturing the imagination of fans across the Arab world and beyond. It was a welcome distraction for Moroccan consumers and businesses dealing with annual inflation that’s topped 8% in recent months.
But the Atlas Lions’ successes merely had “the effects of an aspirin pill” in treating a more serious ailment, said Rachid Aourraz, co-founder of MIPA, a think tank based in the capital, Rabat.
Worse Outlook
The rate hike should keep average inflation at 6.6% in 2022 and 3.9% next year, even though price pressures look set to persist much longer than initially expected, according to the central bank, also known as Bank al-Maghrib. Both projections are higher than the estimates it gave three months ago.
The decision on Tuesday was widely expected after the surges in prices. Moroccan authorities this December allowed small demonstrations in Rabat and the biggest city, Casablanca, that denounced high living costs, alleged corruption and a human-rights clampdown.
The International Monetary Fund last month said Morocco would need to hike rates again if it wanted to meet its target of bringing annual inflation down to 2% in 2024.
The central bank also said:
- Inflation is projected at 4.2% in 2024 following the introduction of subsidy reforms that year
- The forecast for economic growth has been revised up to 1.1% in 2022, from a projection of 0.8% in September
- The 2023 growth forecast was cut to 3% versus earlier estimate of 3.6%, due to factors including reduced growth prospects in the euro area, Morocco’s key trading partner
- It slightly revised down its budget deficit forecasts to 5.3% of gross domestic product in 2022 and 4.6% of GDP next year. The deficit was 5.9% in 2021
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