Faced with rising inflation and the approach of the second board of Bank Al-Maghrib in 2022, the question arises about keeping the key rate unchanged at 1.5%. Here are the pros and cons of raising the key bid.
This will be the main question at the beginning of the week: keep the key bid or raise it? The second Board of Al-Maghrib Bank in 2022, which will take place on Tuesday, June 21, should resolve this issue.
As CDG Capital Insight notes in its Bank Al-Maghrib pre-Advisory Flash, “this Council is intervening in a very complex national and international context, mainly due to rising inflation to historically high levels; expected sharp slowdown in economic growth in 2022, mainly due to poor progress in the 2021-2022 agricultural season; complex and uncertain international environment, both economically and politically; with the beginning of the Russian-Ukrainian war and the restrictive reaction of the central banks of developed countries in the face of inflationary waves and their impact on capital movements and financing conditions of economies.
The only good argument for raising the key bid
The final decision, of course, remains with the board of Bank Al Maghirb. Whatever he does, his decision will have both advantages and disadvantages. It is the analysis of the costs and benefits of each decision and the trajectory that the country wants that will tip the scales in one direction or another.
Ahmed Jani, an economist in macroeconomic research and interest rates at CDG Capital, joins LeBoursier / Médias24 and believes that a possible increase in the key rate, which is now 1.50%, is an advantage, but there are some risks or disadvantages.
Only the argument in favor of raising the rate is protection of savings. “Deposit rates have dropped significantly. This hinders savings and time investments. Therefore, we are seeing a deterioration in accommodation conditions. “
Risks / disadvantages of lifting
Operators are concerned about the deteriorating return on savings and hope to raise rates, but this concern exists even in developed countries. The first risk is that we will raise the key rate and the expected effect will not be realized.
We see, for example, what is happening in the United States, they are still in negative territory, despite the increase made by the Fed, the inflation rate is so high that real rates still remain negative (…) On the contrary, we see that the ECB, which postponed raising the key rate to July. This shows that the bank does not want to react in a hurry, “he said.
So, ” Savings cannot be a priority over economic growth otherwise it will cause several problems. “
Another element is added to this equation : slow transfer of falling rates to loan rates. “The reduction in the key rate made in 2020 is still not fully reflected in credit rates. In addition, loans are difficult to repay, especially loans for equipment and real estate development. These figures are even in decline.
Risk of deterioration of financing conditions
Another disadvantage of raising rates is ” deteriorating financing conditions“. “The monetary system exists to support the financing of the economy, and the Central Bank also has a mission to restore growth as much as possible. The central bank cannot raise the rate to please traders, especially since the cost of financing the Treasury has increased. An increase in the key rate will further increase this increase due to mechanical impact, ”explains our interlocutor.
“The increase in the key rate will be reflected in the yield curve and the cost of financing the Treasury. This will also be reproduced at the borrowing rate, as it will increase the financing rates of banks that do not have liquidity. There is still a significant deficit of about 80 billion dirhams which is financed by the Central Bank and which is automatically subject to rate increases. Immediate consequence: a potential increase that will be reflected in the cost of financing the economy as a whole. This will further slow down the distribution of credit, which has already been suspended“.
To this is added the fact that raising the rate cannot really affect the current level of inflation. “Inflation of import origin. Therefore, it cannot be controlled by restrictive monetary policy. “
The local fund manager also believes that the key rate should not be raised during this period. “Raising the key rate would be detrimental to the economy and inflation. We cannot stop inflation by affecting the rate. To stop this, you will have to mechanically import cheaper or less, but this is not really possible, because imports concern products that we do not have.