Morocco raises interest rate to 2% to contain soaring inflation

RABAT - Morocco’s Central Bank (BAM) raised on Tuesday its key rate by 50 basis points to 2% in a bid to curb a "sharp acceleration of inflation," according to a press release from the institution.

“This expected increase was decided to ensure the conditions for a rapid return to levels in line with the objective of price stability," said Bank al-Maghrib in a statement at the end of its quarterly meeting.

“It occurs in a context of inflationary pressure fuelled by soaring commodity prices worldwide. Thus the consumer price index rose by 8% in August over one year, driven mainly by the increase in food and fuel prices," according to the BAM.

The BAM expects inflation to reach 6.3% in 2022 (compared to 1.4% in 2021). And then fall to 2.4% in 2023.

“Driven by the increase in food prices included therein, core inflation would accelerate to 6.3% in 2022 after 1.7% in 2021, before decelerating to 2.5% in 2023, said the BAM.

Growth in economic activity will show a "clear slowdown" to 0.8% in 2022 (+7.9% in 2021), driven by "a 14.7% decline in agricultural value added and a deceleration in the pace of non-agricultural activities,” added BAM, which forecasts a recovery of 3.6% in 2023 (provided there is a good cereal harvest).

This situation remains “deeply marked by the consequences of the COVID-19 pandemic and the implications of the war in Ukraine” but also by “the repercussions of a particularly severe drought,” the Bank noted.

Morocco’s economy remains largely dependent on the agricultural and fishing sector, which still represented nearly 12% of GDP in 2020.