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Morocco adopting more flexible exchange rate to boost standing

Country’s central bank will widen the official band within which the dirham fluctuates to 5%

Gulf News

Cairo: 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, will widen the official band within which the dirham fluctuates to 5 per cent, with a maximum daily increase or decrease of 2.5 per cent, government spokesman Mustafa Khalfi said on Friday. The central bank will set a new reference price for the dirham on Monday.

“This is part of broader monetary reform aimed at enhancing the competitiveness of our economy and meeting our development plan objectives,” Khalfi said in a telephone interview. Moroccan officials have said that the move will help the country’s efforts to transform itself into a regional hub and a business gateway to Africa.

The International Monetary Fund had urged Morocco to move ahead with its plan as soon as possible.

Mounir Razki, head of monetary and exchange operations at Bank Al Maghrib, said the central bank would issue a detailed statement on the plans later on Friday.

No currency crisis

The dirham is pegged to a two-currency basket weighted 60 per cent to the euro and 40 per cent to the US dollar. It closed at 9.25 on Friday. Morocco’s central bank has been promising exchange rate liberalisation 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 per cent in 2017. Headline inflation is estimated at 0.7 per cent in 2017, down from 1.6 per cent in 2016. Foreign exchange reserves, which faced pressure in 2017 due to uncertainty over the move, have stabilised 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 paralysed 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 per cent.

Morocco isn’t expected to float the dirham but to loosen the peg.