Moroccan Dirham Strengthens Against Euro: Economist Explains Key Factors

According to the economist, this trend is explained by the decline in imports, due to the halt in activity and the collapse of energy product prices, reports the MAP. This decline has resulted in the cancellation of several import contracts, as well as forward exchange rate hedging contracts and the readjustment of banks’ foreign exchange positions, due to the improvement in short-term visibility on the evolution of foreign exchange reserves, notably as a result of Morocco’s drawing on the Precautionary and Liquidity Line (PLL) of the International Monetary Fund (IMF).

Persistent rumors about the authorities’ decision to suspend dividend distribution, a decision that would imply a decrease in the demand for foreign currencies, particularly the euro, also explains this trend.

According to Omar Bakkou, a trend towards depreciation of the national currency against the euro has been observed since the beginning of the year until mid-April. According to the economist, this depreciation is attributable to the increase in banks’ foreign exchange positions due to forecasts of drastic declines in foreign exchange earnings (tourism revenues, Moroccans residing abroad, foreign direct investment, etc.) in the coming months, as a result of the adverse effects of covid-19.

He also mentions the widening of the dirham’s fluctuation band from 5 to 10% around a central rate set by Bank Al Maghrib (BAM), adopted by the government and Bank Al Maghrib on March 9.