The dirham exchange rate remains stable within the range… and the Bank of Morocco prepares for a new liberalization

Over the past year, the dirham exchange rate has maintained a range-bound movement of ±5%, as it continued to approach the bottom and stabilize there until the end of December.

The national currency ended more than four years of gradual liberalization, as a new fluctuation range of ±2.5 percent was adopted in 2018 instead of ±0.3 percent in the past, and in 2020 the margin of motion was expanded to ±5 percent.

In its recent annual report, Bank Al-Maghrib considered that the value of the national currency is still in line with the foundations of the national economy, since it increased in the total for the year against the euro and the US dollar by 1.8 percent. percent and 5.7 percent. percent, respectively.

Quarterly assessments by Al-Maghrib Bank showed that the dirham exchange rate remains consistent with economic fundamentals. As of September 2021, the Bank carried out auction operations for the purchase of foreign currency, which resulted in a gradual convergence of the exchange rate with the central rate.

The exchange rate is one of the economic variables that generally experiences rapid and sometimes large fluctuations, and may be temporary in nature, linked to temporary excesses in the supply or demand of currency, and may also reflect a structural deviation in value. of the currency compared to the country’s economic foundations.

Bank Al-Maghrib emphasizes that distinguishing between the two cases is very important; In the first case, the central bank can, through timely interventions, reduce the imbalance in the foreign exchange market, while the second case requires the adoption of deeper measures, such as changing the exchange system.

The data indicates that the dirham strengthened over the past year by an average of 32 percent against the Turkish lira and 12.2 percent against the Brazilian real, while its value fell 1.5 percent against the sterling and 1.3 percent against the Chinese yuan.

The International Monetary Fund mission has often recommended that Morocco go through a new phase of liberalization of the dirham exchange rate range, but the authorities prefer to wait and work to raise awareness among economic actors, especially small and medium-sized enterprises, of the importance of managing currency risks.

Bank Al-Maghrib, with the support of the International Monetary Fund, is currently working to strengthen its monitoring and intervention operating system, and is working to improve its framework for partial prudential monitoring.

The Central Bank linked the transition to a more flexible exchange rate system to the availability of favorable conditions, for which it is preparing by strengthening an analysis and forecasting system and revising the inflation targeting framework project.