Morocco to adopt flexible exchange rate policy
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.