Economic Analysis - Exchange Rate Liberalisation Reaffirms Long-Term Commitment To Reform - MAR 2018

BMI View : The government's gradual widening of the Moroccan dirham's trading ban is unlikely to prompt a sharp currency sell-off, limiting near-term risks to growth and inflation. Over the longer term, it signals the government ' s commitment to become an investment hub in the region, and to diversify trade away from Europe.

Morocco's decision to gradually move towards a more flexible exchange rate regime will offer crucial economic tailwinds in the years ahead. On January 15, the Ministry of Finance officially widened the band in which the Moroccan dirham trades against a basket of currencies (60% euro; 40% dollar) from +/- 0.3% to +/-2.5%. Over a multi-year timeframe, the stated objective of the ministry is that it will move towards a free floating currency. We see the latest move as likely to help the country in its efforts to attract greater investment to the kingdom and diversify trade, while the risks of disorderly depreciation are well contained given the country's robust financial buffers.

Disorderly Depreciation Risks Contained

Speculation Fears Seem Contained
Morocco - MAD/EUR Exchange Rate, Daily Chart
Source: Bloomberg, BMI

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