On Tuesday June 25, for the first time since 2020, Bank Al-Maghrib (BAM) decided to reduce its key interest rate. The rate was lowered from 3% to 2.75% in a context marked by falling inflationary pressures, which is the reason for the tightening of monetary policy. After peaking at 6.6% in 2022, inflation has been falling since the beginning of the year. According to central bank projections, it should end 2024 at an average rate of 1.5%, rising to 2.7% in 2025 (due in particular to the decompensation of butane).
Following in the footsteps of the European Central Bank (ECB), which cut its key rates by a quarter of a point on June 6, BAM’s wali explains his decision by the improvement in economic indicators. In particular, growth is expected to reach 4.5% in 2024 and 4.8% in 2025, levels that « have not been seen for several years« , enthused Abdellatif Jouahri at a press conference held on June 25 following the BAM Board meeting. Under these conditions, debt levels are set to fall from 70% to 68% over the next two years, demonstrating a « mastery of public finances » .
A positive signal
But in concrete terms, what will this measure change? Although only slight, this first reduction in the key interest rate should send a positive signal to economic players. It should encourage companies to anticipate easier access to funds on the banking market, in order to plan new investment projects. This spending should ultimately stimulate the economic market and boost growth.
« This first cut in the key rate could be interpreted as a sign of further relaxation in the future, foreshadowing possible further reductions to 2.5% or even 2% by the end of the year. These cuts are intended to lower the cost of bank loans to businesses and households in the future, thereby stimulating demand and value creation » , economist Omar Bakkou tells TelQuel.
Indeed, after reaching an all-time low of 4.23% in the third quarter of 2022, the lending rate began an upward trend to reach 5.4% in the first quarter of 2024, making the cost of money borrowed by households and businesses from commercial banks more expensive.
A nuanced impact
« To have a significant impact on purchasing power and bank lending rates, we need to wait for Bank Al-Maghrib’s next decisions. We won’t see a significant impact before 2025 »
However, the hoped-for fall in bank rates is still likely to be a long time coming, due to the time needed to transmit monetary policy to the banking market. « To have a significant impact on purchasing power and bank lending rates, we need to wait for Bank Al-Maghrib’s next decisions. We won’t see a significant impact before 2025« , argues economist Mohammed Jadri.
At this stage, it is more of a psychological effect for investors, as the Kingdom seeks to attract large amounts of capital, both foreign and domestic, in order to finance the major projects to which Morocco is committed, such as the African Cup and the World Cup, or to respond to climate challenges via strategic projects such as desalination plants and dam construction.
Moreover, lower interest rates alone will not be enough to substantially influence demand and production, as the cost of loans is not the only determining factor. According to Omar Bakkou, access to loans remains difficult for many small and medium-sized enterprises (SME) capable of creating value, mainly due to their inability to provide the collateral required by banks. « Moroccan banks are very risk-averse. To rapidly stimulate demand from SMEs and households, we need to think about new financing mechanisms. New products targeted and adapted to this population« , he explains.
In the Kingdom of cash money
« The spectacular rise in cash money shows the importance of the informal economy and a lack of financial culture among citizens, who are desperate to dodge taxes »
The reluctance of commercial banks is all the greater given their liquidity shortages. A recent study by Attijari Global Research (AGR) shows that the bank liquidity deficit is at an all-time high of MAD 118.2 billion at the end of April 2024, an increase of MAD 52.8 billion in just one year.
This situation is exacerbated by the explosion in the volume of cash in circulation, which has exceeded 430 billion dirhams according to the latest BAM data, or 30% of national GDP, one of the highest rates in the world. « The spectacular increase of cash in circulation shows the importance of the informal economy and the lack of a financial culture among citizens, who are desperate to dodge taxes, » says Omar Bakkou.
Not hiding his concern about the huge increase in the circulation of cash, Jouahri assures us that a dedicated commission has been set up, under the chairmanship of BAM, to explore the various causes and solutions for curbing the phenomenon. Among the solutions explored, the wali is banking on the introduction of the e-dirham, a traceable digital currency designed to eventually replace traditional paper money or coins.
« When the government asks for cash to go digital, it does so to facilitate subsequent control (…). Cash remains the main channel for financing money laundering and terrorism, due to its lack of traceability and the anonymity it provides, » laments Abdellatif Jouahri.
But modernizing payment systems, with a gradual reduction in the use of cash in favor of mobile payments or e-dirham, will not be enough to solve the cash problem, says Omar Bakkou. He believes that this ambition must be accompanied by a profound transformation of the tax system, to make it « fairer, more transparent and better accepted by the population« .
« There are economic players who resist; we need to take tough measures to bring them towards greater transparency. We need to increase the cost of non-transparency through tough sanctions in order to improve the benefits of transparency. It’s a cost/benefit calculation« , he concludes.
Written by Safae Hadri, edited in English by S.E.
