Morocco's central bank cut its key interest rate for the second time this year as inflation is expected to remain moderate this year and in 2021 while the economy is expected to contract at the fastest pace since 1996.

    The Bank of Morocco, or Bank Al-Maghrib (BAM), cut its main rate by 50 basis points to 1.50 percent and has now cut it by 75 basis points this year following a first cut in March.

    The central bank said it was also fully releasing commercial banks' reserve accounts.

    Given the strong uncertainties surrounding the evolution of the domestic and international economy, BAM said it was closely monitoring the situation and would hold an extraordinary board meeting before the next scheduled meeting on Sept. 22 if circumstances change.

    Internationally the pace of recovery remains subject to strong uncertainties and it's clear the global economy will experience a severe recession this year, BAM said, forecasting Morocco's economy will contract by 5.2 percent this year, it strongest decline since 1996, due to the combination of drought and restrictions to limit the spread of Covid-19.

    A survey of the labor market from April 1 to April 3 showed that almost 726,000 jobs, or 20 percent of the workforce in organized companies, had been destroyed by the pandemic, BAM said.

    Inflation, which averaged 1.4 percent in the first quarter of this year, eased to 0.9 percent in April and is expected to average around 1.0 percent this year and 2021 due to low inflationary pressures from demand and commodity prices.

    Provisional data for Morocco's external accounts in April are also showing the first signs of the impact of the healthy crises, with exports down 19.7 percent and imports down 12.6 percent, with BAM forecasting a 15.8 percent decline in exports for the full year, with the automotive sector, textiles and leather affected by the disruption to supply chains and weaker foreign demand.

    Imports are seen dropping 10.7 percent due to a lower energy bill and lower imports of capital goods so official reserves are forecast of 218.6 billion dirham in 2020 and 221.7 billion in 2021, enough to cover 5 months of imports.

    The country's budget deficit, excluding the impact of privatizations, is expected to deteriorate to 7.6 percent of gross domestic product this year from 4.1 percent in 2019 but then improve to 5.0 percent in 2021.

    The Treasury's debt is expected to rise to 75.3 percent of GDP this year from 65.0 percent last year and then rise slightly to 75.4 percent in 2021.


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