Morocco will adopt a more flexible exchange rate from Monday as part of a long-awaited plan aimed at boosting the competitiveness of the North African nation’s economy.
Morocco will adopt a more flexible exchange rate from Monday as part of a long-awaited plan aimed at boosting the competitiveness of the North African nation’s economy.
Bank Al-Maghrib, Morocco’s central bank, said in a statement it would widen the official band within which the dirham fluctuates to 5 percent, with a maximum daily moves of 2.5 percent above or below the official rate. The dirham is currently allowed to fluctuate within a much narrower band of 0.3 percent either side of the peg. The central bank will set a new reference price for the dirham on Monday.
No Currency Crisis
The dirham is pegged to a two-currency basket weighted 60 percent to the euro and 40 percent to the U.S. dollar. It closed at 9.25 on Friday. Morocco’s central bank has been promising exchange rate liberalization for years, and the move had been expected in the second half of 2017. As the year went on, it became increasingly clear that the step would be delayed.
Unlike nearby Egypt, which floated its pound in November 2016, Morocco isn’t facing a currency crisis and wasn’t under pressure to take immediate action. It has an investment-grade credit rating and an expanding private sector.
Economic growth is expected to have averaged 4.1 percent in 2017. Headline inflation is estimated at 0.7 percent in 2017, down from 1.6 percent in 2016. Foreign exchange reserves, which faced pressure in 2017 due to uncertainty over the move, have stabilized at a level sufficient to cover five and a half months worth of imports.
Egypt, by contrast, faced plummeting foreign reserves and a severe dollar shortage that all but paralyzed trade. Imbalances led to a ballooning black market for dollars, piling downward pressure on the pound before most controls were lifted. The pound has halved in value since the float, driving inflation to record levels above 30 percent.
Morocco isn’t imminently expected to float the dirham.