March 19, 2019 / 2:20 PM / a year ago

UPDATE 2-Morocco keeps benchmark interest rate unchanged at 2.25 pct

(Adds details from news conference)

By Ahmed Eljechtimi

RABAT, March 19 (Reuters) - Morocco’s central bank left its benchmark interest rate flat at 2.25 percent on Tuesday, saying the decision was in line with the inflation and growth outlook.

Driven mainly by food prices, inflation is seen dipping to 0.6 percent in 2019 from 1.9 percent in 2018, before picking up to 1.1 percent in 2020, the central bank, known as Bank Al Maghrib, said in a statement.

The kingdom will issue two international bonds in 2019 and 2020 each worth 11 billion dirhams ($1.14 billion), central bank governor Abdellatif Jouahri also said. The exact amount and timing would be decided by the finance ministry.

The bonds would help lift Morocco’s foreign exchange reserves from 231 billion dirhams in 2018 to 239 billion dirhams in 2019 before falling to 236 billion dirhams in 2020, enough to cover five months of import needs.

Economic growth was 3.1 percent in 2018, down from 4.1 percent in 2017, and could drop further to 2.7 percent in 2019, the central bank said, projecting a fall in cereals output to 6 million tonnes in 2019 from 10.3 million in 2018.

The current account deficit is expected to ease to 4.1 percent in 2019 and 3.4 percent in 2020, down from 5.2 percent in 2018, the bank said. This will be triggered by a decrease in the energy import bill and expected receipts of 2 billion and 1.8 billion dirhams in 2019 and 2020 respectively in donations from Gulf Cooperation Council countries.

The banking system was sound with lenders having sufficient hard currency, Jouahri told a news conference, reiterating also that the kingdom would launch a further liberalisation of the exchange rate only once economic conditions allowed it.

In January 2018, Morocco widened the band in which the dirham trades against hard currencies to 2.5 percent either side of a reference price from the previous 0.3 percent. It said then the band would widen further at some point.

“The result of the first phase is positive,” he said.

Foreign direct investment accounted for 4.1 percent of gross domestic product in 2018 but is likely to fall to 3.4 percent in 2019, the statement said.

The bank anticipates Morocco’s budget deficit to widen to 4.1 percent in 2019, excluding privatisation revenue, from 3.7 percent last year. (Reporting by Ahmed Eljechtimi Editing by Mark Heinrich and Peter Graff)

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