Morocco to adopt flexible exchange rate policy

Morocco’s central bank said it would act if a major external shock occurred.

Solid economy. Morocco’s Central Bank Governor Abdellatif Jouahri speaks to the media. (Reuters)


2017/03/19 Issue: 98 Page: 18


The Arab Weekly
Saad Guerraoui



Casablanca - Morocco is preparing to move from a fixed exchange rate con­trolled by the coun­try’s central bank to a flexible regime in which the val­ue of the currency is left to market forces as part of the North African country’s reforms to liberalise its economy.

The change to a floating ex­change rate, which Moroccan au­thorities have been considering since 2007, is expected to be in full effect this year.

Bank Al-Maghrib, Morocco’s central bank, said it would opt for a gradual and orderly transition process towards a more flexible exchange rate regime to allow mar­kets to adapt to the change.

Rachid Aourraz, researcher at the Arab Centre for Scientific Re­search and Human Studies, said the move had been a foregone con­clusion.

“Morocco has adopted a policy of economic openness since the mid-1990s and has achieved very little progress on some levels. The masterminds of monetary policy now think that time of the liber­alisation of the Moroccan dirham has come, based on the data they have,” Aourraz said.

He said he was optimistic about the flexible exchange rate’s effects on the Moroccan economy.

“This new monetary policy will have some positive aspects, in­cluding more control over infla­tion, because the experiments showed that the flexible exchange rate is always accompanied by low inflation rates in the light of po­litical instability,” he said. “This policy will also contribute to sup­porting the competitiveness of the Moroccan economy at the interna­tional level.

“A low dirham will support Mo­rocco’s exports and attract more tourists, which is very important for a country that [depends] sig­nificantly on the tourism sector. It will also curb the pace of imports, which will consequently improve the situation of chronic deficit suf­fered by the Moroccan balance of trade.”

Several economic operators cit­ed Turkey and Egypt as examples to explain the risks of Morocco’s market transition.

Rachid Boutti, distinguished visiting professor at Universidad de Las Palmas de Gran Canaria, said the plunging value of Egypt’s cur­rency was due to worsening eco­nomic conditions in the country, while the drop of the Turkish lira could be explained by the coun­try’s political turmoil.

“Both cases of Egypt and Tur­key are exceptional. The Moroccan economy is solid besides a political stability. We also have enough for­eign currency to avoid such scenar­ios,” Boutti said.

Egypt floated its currency in No­vember, a move followed by a de­valuation from the fixed rate of 8.8 pounds per US dollar to a traded rate of 18 pounds per dollar as part of its austerity programme. Infla­tion in Egypt soared to its highest annual rate in decades — 31.7% in February — and rising food prices took their toll on Egyptians’ buying power.

Morocco’s central bank said it would act if a major external shock occurred, describing the Egyptian decision as “forced and disorderly”.

“If such a scenario were to occur, it would be necessary to devalue the currency at once and to bear the consequences that this could have on the economy and society,” the central bank said.


Saad Guerraoui is a regular contributor to The Arab Weekly on Maghreb issues.


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