Morocco’s Central Bank Cautious on Further Dirham Flexibility Amid Economic Uncertainties

After the first widening of the dirham’s fluctuation band from 5% (+/- 2.5% on either side of the central rate) in January 2018 and the second widening (+/- 5%) in March 2020 to cope with the external shock looming due to the Covid-19 pandemic, is Morocco considering the next stage of the exchange rate regime reform? While continuing to refine the inflation targeting framework project, Bank Al-Maghrib believes that the transition to the subsequent phases cannot be envisaged in the current situation and that it is more judicious to wait for the uncertainty surrounding global and national economic prospects to dissipate, Abdellatif Jouahri insisted during the presentation to King Mohammed VI of Bank Al-Maghrib’s annual report on the economic, monetary and financial situation of Morocco for the 2022 fiscal year.

According to his explanations, the regular monitoring carried out by the central bank shows that the transition initiated in January 2018 is continuing under good conditions, with a marked deepening of the market and increased use of foreign exchange risk hedging instruments. Thus, the dirham exchange rate has remained within the fluctuation band, reports Le360. Similarly, the quarterly assessments confirm that the value of the national currency remains in line with the fundamentals of the economy.

The central bank’s report also shows that the year 2022 was marked by a strong appreciation of the dollar during the first nine months, due in particular to a rapid pace of monetary tightening by the U.S. Federal Reserve. The euro/dollar parity went from $1.14/euro at the beginning of 2022 to 0.96 at the end of September, its lowest level in two decades, before rising again to end the year at 1.07, it is specified.