Morocco's inflation, relatively low in recent years (OBG)

London - Contrary to several emerging countries in the Middle-East and North Africa, Morocco has managed to keep its inflation on hold, said, Thursday, the London-based Oxford Business Group (OBG).
 
   Morocco's inflation has been relatively low in recent years, at only 1 pc in 2005 and 3.3 pc in 2006, and it has not tipped over 4 pc in the past 10 years, averaging under 2 pc, said the think-tank, which analyses economic and social trends in several emerging countries in Africa, Asia and Europe.

   In a report sent to MAP London office, the group said that by contrast, other emerging markets in the Middle East and North Africa region and beyond have been harder hit, due to high levels of growth and the sharply rising costs of commodities and food.

   Last year, inflation in Algeria was 4.5 pc, Egypt's was 10.5 pc and Turkey's was above 8 pc, added the sources, quoting figures compiled by the International Monetary Fund (IMF).

   These figures may be lower than the actual inflation rates, as many countries reported price surges towards the end of the year, explained the OBG, recalling the decision of Morocco's central bank to keep the interest rates unchanged, citing forecasts that inflation would remain relatively low and steady in the near future as behind its decision to leave its main interest rate unchanged.

   Nonetheless, rising costs and food prices may yet have an effect, and the bank has said it will remain watchful, said the UK group.

   Noting that Morocco has kept inflationary pressures at bay thus far, the OBG explained that one of the main reasons behind this is the Bank Al Maghrib's high minimum reserve requirement (MRR) of 16.5 pc, which limits the proportion of banks' deposits that can be lent out and has constrained the amount of liquidity flooding onto the market.

   The fact that the lion's share of the local banking sector is in domestic hands limits access to sources of capital (in countries where foreign banks are numerous, MRRs are less effective as the international subsidiaries can borrow from their mother banks abroad), added the source, stressing that the strong dirham, which some say is overvalued, has helped keep down the cost of imports, including fuel.

   The dirham is pegged to a basket of currencies in which the euro has a very strong weighting, and the European single currency has been appreciating strongly recently against the dollar, in which oil is priced, says the report, adding that Morocco subsidizes flour and fuel, amongst other primary products, and these subsidies have absorbed much of the rising costs.

   Finally, 2007 saw Morocco's growth rate drop to 2.5%, following a very poor harvest, and the slowdown has helped ease demand pressures, the group goes on.

   Quoting the IMF, the OBG says that Morocco's Gross Domestic Product (GDP) will bounce back to almost 6 pc this year, and the government is continuing to invest in vital infrastructure, particularly the road network.

   Tight monetary policy has been a factor underpinning Morocco's impressive growth over the past decade, and has helped it to secure large amounts of investment from businesspeople who are confident that the economy will remain stable and on the right track, adds the source.

MAP