By Enes Morina
Morocco's central bank cut its key interest rate Tuesday, making it the first north African central bank to lower borrowing rates in a sign of confidence that inflation had been tamed.
Morocco's central bank cut its key interest rate to 2.75% from 3%, as headline inflation continues to hover just above zero. The annual rate of inflation rose to 0.4% in May from 0.2% in April. The low rates of inflation compare to a peak of 10.1% in early 2023.
Headline inflation has slowed mostly due to falling food prices, which declined by 1.3% in May from a year earlier. Morocco had been grappling with high food prices, with food inflation of more than 20% in early 2023, when uncertainty around grain supplies following Russia's invasion of Ukraine drove supply-chain disruptions.
A surge in food prices had an outsized impact on Moroccans. They spend a high proportion of their household income on food, around 38%.
The central bank said it expects the inflation rate to average 1.5% this year, down from 6.1% in 2023, and pick up to 2.7% in 2025.
"The board will continue to closely monitor economic conditions and inflation both at the national and international level," the central bank said.
Capital Economics expects the key interest rate to fall by half a percentage point more by the end of this year. The economic consultancy forecasts a further 75 basis points of cuts, to 1.5%, in 2025.
The central bank last lowered borrowing costs in 2020 and began to tighten policy in September 2022.
The Moroccan move comes nearly three weeks after the European Central Bank lowered its key rate for the first time since 2019. The rate cut in the eurozone--which is the country's largest trading partner--gave the central bank room to lower its own key rate, as the Moroccan dirham is pegged primarily to the euro.
Meanwhile, the Federal Reserve has diverged with its European counterpart, holding its benchmark rate steady so far in 2024. Fed officials are penciling in just one rate cut for this year, suggesting a start to cuts in either September or December.
Morocco along with two other African countries, remains an outlier in its fight against inflation. While Ghana and Mozambique have also cut rates this year, with the latter doing so three times already, the rest of the continent remains more hawkish.
In May, Nigeria raised its key interest rate to 26.25% from 24.75%, a record high, in an attempt to curb a high inflation driven partly by rising food and electricity costs. Similarly, Angola and Zambia have also had to raise rates to combat inflationary pressures from currency depreciation and drought, respectively.
Write to Enes Morina at enes.morina@wsj.com
(END) Dow Jones Newswires
06-25-24 0932ET
