Supervisor Elham AbolFateh
Editor in Chief Mohamed Wadie

Morocco Determined to Liberalize Dirham Exchange Rate after Ensuring Readiness of SMEs: CB Governor

Wed 20 Mar 2024 | 09:29 PM
Taarek Refaat

The Governor of the Bank of Morocco Abdellatif Jouahri confirmed that the bank is determined to liberalize the dirham price in line with the requirements of the International Monetary Fund, but it must ensure the readiness of small and medium-sized companies before liberalizing it.

Jouahri said in an interview with Al-Arabiya that the Central Bank does not have a foreign reserve crisis, and the IMF believes that conditions are favorable for liberalizing the dirham.

Capital Economics stated, in a recent report, that the confidence of the Central Bank of Morocco is expected to increase in taking the next step towards the complete floatation of the local currency thanks to the improvement in the balance of payments position and the sharp slowdown in the inflation rate, anticipating an increase in the dirham exchange rate against the euro.

The governor of the Bank of Morocco explained that consultations are conducted annually with the International Monetary Fund, and 'we always tell them that the people of Mecca know best its paths.'

 The Fund’s mission at the end of January and the beginning of last February offered to liberalize the price of the dirham, while the Fund did not propose that last year.

He pointed out that the Fund believes that conditions are favorable for liberalizing the dirham price, with sufficient cash reserves.

Morocco has begun to allow greater flexibility in the dirham exchange rate since it received a three-billion-dollar package from the International Monetary Fund in 2014, while gradually moving towards setting an inflation target. 

In early 2018, the Moroccan Central Bank allowed the currency to be traded within a range of 2.5% above or below a reference price published daily for a basket of currencies consisting of the euro by 60% and the dollar by 40%, before expanding this range in March 2020 to 5%, but it did not take no additional measures since then, according to Capital Economics.

The institution said that the Central Bank of Morocco has built up a strong foreign exchange reserve amounting to $34.3 billion, adding that this covers Morocco’s short-term needs for external financing more than three times, which would strengthen the Bank of Morocco’s confidence in its ability to support the currency if it is exposed to any downward pressures. 

Capital Economics expected that the next step for the Moroccan Central Bank would be to further expand the scope of currency trading, not the complete flotation of the dirham.

The Bank of Morocco kept the key interest rate at 3%, indicating that its monetary policy helps reduce inflation. The Central Bank expected inflation to decline to 2.2% in 2024 from 6.1% last year.

The bank stated that the fiscal deficit will remain stable at 4.4% in 2024, before shrinking to 4%, indicating a reduction in subsidies and an increase in tax revenues.

It added that growth is likely to decline to 2.1% in 2024 from 3% in 2023 due to drought.