By ABASHI SHAMAMBA
Driven by a contraction in demand for currencies on the foreign exchange market and an explosion in transfers of MRE ($ 9 billion expected at the end of December), the price of the Moroccan currency against the euro and the dollar is approaching the lower limit of its fluctuation band. Not at all worried, the Central Bank (Bank Al-Maghrib) sees it as a weapon to counter imported inflation.
Moroccans who receive money sent by their parents residing in Europe, the United States or MRE resettled in Morocco who receive their pension from abroad, have observed this for several months. For the same amount, the amount received has decreased. The same goes for exporters who have not taken out any currency risk hedging. And there are many, according to trading floor professionals in the Casablanca financial center. Transfers received from their foreign customers are reduced by several thousand dirhams, or even more depending on the value of the goods if, in addition, no clause in the sales contract prevents the risk of variation in the invoicing currency. In activities such as textile-clothing subcontracting, tourism or call centers, where competition is sometimes played on a few cents in dollars or euros, a strong dirham is not good news. Their price competitiveness can be undermined.
If households and businesses alike suffer from the current appreciation of the Dirham against the dollar and the euro (by at least 5%), on the other hand, importers and the Moroccan Treasury should rub their hands because a strong Dirham mechanically reduced the final invoice to be paid to the supplier and the cost of the external debt. In the end, the appreciation of the dirham provides some protection against imported inflation without being a barrier against the rise in the prices of imported products whose prices are soaring on the international market. This is the case of petroleum products whose subsidy stabilization mechanism was abolished in 20246, wheat or coffee for example.
What is certain is that the ingredients are there for the dirham to continue its soaring against the greenback and the euro. Unlike interest rates, the differential in inflation rates compared to the Kingdom’s main economic partners remains favorable to Morocco. This is a factor that keeps the dirham rising. To this element must be added the uncertainty linked to the health crisis.
How far can the appreciation of the Dirham go? Neither the forex traders in the trading rooms nor the experts at Bank Al-Maghrib dare to make a prediction. Even if the dirham is approaching the lower end of its fluctuation band, the central bank is showing no signs of concern. “The appreciation of the dirham is not the result of structural factors, but rather of cyclical factors which relate in particular to a relatively slow economic recovery given the uncertainties linked to the evolution of the Covid-19 pandemic”. In this context, import volumes remain low and less dynamic than exports, which induces a foreign exchange surplus which tends to appreciate the nominal exchange rate of the dirham. To lower the fever on the rate of the dirham, Bank Al-Maghrib intervened on the foreign exchange market through auctions for the purchase of foreign currency in order to absorb the surplus in foreign currency and thus ensure the proper functioning of this market, explain its experts. In the currency purchase auction of November 9, Bank Al-Maghrib withheld $ 55 million, the equivalent of MAD 497.9 million.
The health crisis has had a strong impact on the factors determining liquidity conditions on the foreign exchange market. The drop in imports combined with a sharp increase in exports led to excess liquidity in the market and pressure on demand for the dirham. The weakness of import flows is believed to be attributable to the persistence of the effects of the coronavirus pandemic, particularly in connection with the dysfunction of supply chains, such as the surge in sea freight prices or even the increase in delivery times. . At the same time, the maintenance of export flows is essentially supported by the increase in the prices of raw materials, as is the case for the prices of phosphate and derivatives.
Due to this imbalance in the trade balance, the overheating of the dirham accelerated this summer following massive inflows of foreign banknotes (following the reopening of borders on June 15) and the resilience of transfers from MREs. which should break all records this year according to official forecasts. At least the equivalent of $ 9.2 billion.12 As a result, the dirham has never been in higher demand. It is currently trading at levels close to the lower limit of the fluctuation band.
Desinflation plus strong dirham
This appreciation of the dirham combined with structural disinflation is de facto a form of subsidy to exporters of daily consumer goods to Morocco by making imports cheap. Not at all, correct the experts of Bank Al-Maghrib. Price stability is the central mission of the Central Bank as provided for in its statutes. And its governor, Abdellatif Jouahri is keen on it above all, he who had known the era of hyperinflation in the early 1980s. For more than two decades, inflation in Morocco has hovered around 1.5% on average. This price stability is favored by a set of factors of both internal and external origin. These are the fixity of the exchange rate regime against a basket of currencies which has contributed to the moderation of imported inflation; the stability of the macroeconomic environment; the increasing openness of the Moroccan economy, with greater integration into global value chains and the dismantling of tariffs which has given rise to increased competition; and the changing geographical structure of imports, with a growing share of those coming from emerging Asian countries with low wage costs.
This moderate and predictable level of inflation benefits all economic players, notably through the anchoring of inflation expectations, thus promoting the preservation of purchasing power and visibility for economic operators. However, since the start of 2021, the pace of consumer price developments has accelerated slightly both globally and domestically, fueled by the recovery in demand, bottlenecks and soaring material costs. raw materials and particularly maritime transport. The latest forecasts from Bank Al-Maghrib point to an acceleration in inflation while remaining at a moderate level. It should stand at 1.2% in 2021 and 1.6% in 2022. Its underlying component, which reflects its fundamental trend, should increase to 1.4% in 2021 and 2.1% in 2022 .
FRAMED
Export price competitiveness undermined
That the parity of the dirham against the two currencies that form the basket of its quotation (60% Euro and 40% Dollar) is at such a high level, this should not be a destabilizing factor for export activities, believe the experts from Bank Al-Maghrib. At the central bank, a strong dirham is ultimately viewed as an insurance policy against imported inflation. Especially at this time when world prices of major commodities are soaring.
After the launch of the transition to a more flexible exchange rate regime in January 2018, the dirham moves in a band, around a central rate calculated on the basis of the same basket, which has been gradually widened to be from March 2020 at ± 5% In recent months, the exchange rate has appreciated close to the upper limit, but the assessments carried out show that it remains broadly aligned with economic fundamentals and that this appreciation would be cyclical in nature due in particular to an excess of currencies in the market. Regarding competitiveness, it is understood through the evolution of the value in real terms of the dirham by calculating the real effective exchange rate. The latter refers to a basket of currencies from partner and competitor countries. That said, competitiveness remains dependent on productivity which itself refers to structural factors. Thus, for it to produce the expected results, the reform of the exchange rate regime must indeed be accompanied by structural reforms aimed at strengthening the productivity and competitiveness of the productive sectors.
