BMCE Capital Global Research favors keeping the Bank Al-Maghrib (BAM) key rate at 1.5% at the next meeting of its Board. In its latest “Flash Strategy”, the subsidiary of the BMCE Capital group dedicated to research and financial analysis also expects BAM to maintain the reserve requirement at 0%.
In its analysis, BMCE Capital Global Research explains that the economic rebound observed in 2021 in Morocco is due, in part, to the accommodating monetary policy implemented by the Central Bank, in particular by maintaining the key rate at the level of 1.5%. after its double decline operated in 2020 just before the start of the pandemic and the support of the money market through the satisfaction of 100% of the weekly demand of the Banks mainly in the form of 7-day advances.
Modest growth expected in 2022
The momentum of 2021 is unfortunately slowed down in 2022 by the occurrence of a severe drought that affected agricultural production and by the effects induced internationally by the declaration of hostilities of war between Russia and Ukraine. Situation which led the Central Bank to revise downwards its growth forecasts for the national economy to +0.7% against +2.9% Initially.
For its part, the government had revised its growth forecasts to +1.7% against +3.2 projected in the 2022 finance law. Ditto for the international institutions whose forecasts are now between +1.1% for the IMF and +1.3% for the World Bank (vs. 1.8% for the Research Office).
This slowdown already seems to be detectable in Q12022 where the HCP estimates economic growth at +1.8% (against +7.9% in Q4 2021) under the weight of the -12.1% decline in agricultural activities not offset by the +3.3% increase in non-agricultural value added. This trend should be confirmed in Q2 since GDP is expected to rise timidly by +1.8%.
This being the case and in view of the latest estimates from the Ministry of Agriculture, which assumes a cereal production for the 2021/2022 season of 32 MQx at the end of May (compared to 25 MQx taken as a basis for revision by the Central Bank), a slight review to the rise in the rate of economic growth could result from this at the end of the next monetary policy council.
Fiscal deficit reduction
Initial fears of a deterioration in the budget deficit seem to be dissipating for the time being (-6.3% of GDP vs. -5.9% forecast by the 2022 FL), since public finances are showing rock-solid resilience with a deficit in reduction at the end of April to MAD -11.5 billion dirhams (compared to -21.7 billion dirhams for the same period a year earlier), mainly resulting from the improvement in ordinary revenue, even if compensation expenses continue to increase to reach 12.4 MDH (+73%).
Improved financing conditions in 2022
Probably benefiting from the decrease in the average lending rate (of companies and households) to 4.28% in Q1-2022 against 4.44% in Q4-2021, the transmission mechanisms continue, a priori, to be effective, allowing the overall outstanding bank loan to record an increase of +3.2% to MAD 980.7 billion at the end of April 2022.
Increase in primary rates
The Argentier of the Kingdom has seen its financing conditions generally become more expensive. Indeed, after having recorded declines in bond rates ranging from -30bp to -88bp since the first key rate cut in 2020, primary rates have risen on average to around +10 and +20bp.
Record level of inflation
On the price side, the recovery in economic activity and the accommodation of monetary conditions were unable to curb imported inflation, which has remained at record levels since the start of the year, standing at +5.9%. year-on-year at the end of April. For the moment, it is clear that this price increase is in no way of monetary origin.
Rate hikes according to Fitch
In a recent note, Fitch Solutions estimates that the Central Bank should proceed with two rate hikes of 25 bps each in the second half of this year due to runaway inflation and lower growth this year.
In conclusion, BMCE Capital Global Research favors the maintenance in June by Bank Al-Maghrib of the conditions of its monetary policy with a key rate and a mandatory reserve at 1.5% and 0% respectively.