To achieve its objective of price stability, measured by reference to a moderate change in the consumer price index, BAM uses two main instruments, the policy rate and the required reserve.
The key rate is the interest rate applied to BAM's seven-day advances. It serves as a reference for all its operations with banks. The policy rate action is based on the prospective assessment of inflationary pressures and the risks surrounding medium-term inflation forecasts. These pressures are assessed according to their origins and nature and through the analysis of recent developments in a range of indicators and their medium-term projections, including inflation, growth, fiscal and current account balances, Bank credit, net international reserves and the real effective exchange rate.
The required reserve represents the share of bank liabilities that banks are required to keep on their current accounts with Bank Al-Maghrib. It allows regulating in a structural way the liquidity situation of banks according to the orientation of monetary policy.
In the context of a fixed exchange rate regime and a capital account fully open for non-residents and partly open to residents, the transmission of monetary policy decisions to the real economy is carried out mainly through the Interest rate and credit channels. In order to ensure this transmission, the Bank set as its operational target the weighted average rate on the interbank market, which is a reference rate for other markets and which it aims to keep very close to the policy rate.
To enhance the transmission of its decisions, the Bank seeks to conduct monetary policy in a transparent manner and to explain its decisions to all stakeholders and the general public. To this end, it publishes, at the end of the quarterly meeting of its Board, a press release announcing the monetary policy decision and its fundamentals, and organizes a press conference held by the Governor of the Bank. It also publishes the report on monetary policy, on the same day of the meeting. In addition, the Bank publishes the background documents relating to monetary policy.
It conducts a number of other communication actions, including maintaining an ongoing dialogue with the banking system and a proximity policy with businesses in order to communicate around the various measures taken in their favor.
|FOREIGN EXCHANGE REGIME|
Morocco adopts an intermediate exchange rate regime of fixed parity, with a peg of the national currency to a basket of currencies that represents the structure of Morocco's foreign trade, the parity of the dirham is determined within a fluctuation band of +/- 5%, in relation to a central rate set on the basis of a basket of currencies composed of the euro (EUR) and the U.S. dollar (USD) to the extent of 60% and 40% respectively.
The objective of the currency basket is to ensure the stability of the dirham in terms of nominal effective exchange rate and to mitigate the effect of fluctuations in the main international currencies on the dirham. The quotation of the dirham is carried out on the basis of a basket of currencies since 1973.
In 1990, with the prospect of the association agreement with the European Union and a stronger integration of the economy to this area, a review of the quotation basket was carried out in order to strengthen the share of European currencies.
In 1999, the adoption of the euro led to a revision of the basket structure to replace the old European currencies by the euro. In addition, the adoption of new reference rates enabled the integration of the fluctuations recorded since 1990, in order to preserve the stability of the external value of the dirham and to have updated exchange rates.
In April 2001, the basket was readjusted, limiting its composition to the euro and the U.S. dollar with respective weightings of 80 percent and 20 percent. The objective of this change was to reduce fluctuations in the dirham against the euro, the currency of Morocco's main trading partner.
In April 2015, the weights of the currencies in the dirham quotation basket were updated to reflect changes in Morocco's foreign trade patterns. The new weights were set at 60 percent for the euro and 40 percent for the US dollar.
On the 15 January 2018, Morocco entered into a voluntary and gradual transition from a fixed exchange rate regime to a more flexible exchange rate regime, with the launch of the first phase of the exchange rate regime reform, which resulted in a widening of the dirham's fluctuation band from ±0.3% to ±2.5% in relation to a central rate set on the basis of the current reference basket, which is composed of the euro (EUR) and the US dollar (USD) to the tune of 60 percent and 40 percent respectively.
The implementation of the first phase of this reform was accompanied by a number of measures aimed at improving the market price formation mechanism and boosting activity on the interbank foreign exchange market.
In this regard, Bank Al-Maghrib has implemented measures to boost the interbank foreign exchange market and improve its liquidity. To this end, the Bank has established the status of market maker, giving banks exclusive access to foreign exchange auctions in return for their firm quotation commitments on the interbank foreign exchange market. These firm quotations are also used by the Bank to determine the reference exchange rates of currencies against the dirham in accordance with international standards.
In fact, Bank Al-Maghrib has provided market-making banks with an electronic platform for currency trading. The bank has also overhauled its foreign exchange intervention framework with the aim of gradually reducing it.
Indeed, the main intervention instrument of Bank Al-Maghrib is currency auctions. It allows the interbank market to develop further and thus lead to a better price making according to the law of supply and demand, the recourse of banks to Bank Al-Maghrib should be a last resort.
In addition, the Bank has overhauled the regulatory texts governing the operation of the foreign exchange market, through :
On March 9, 2020, the monetary authorities decided to continue the exchange regime reform process, launched in January 2018, by proceeding with a second widening of the dirham's fluctuation band from ±2.5% to ±5% in relation to a central rate set by Bank Al-Maghrib on the basis of a basket of currencies composed of the euro (EUR) and the U.S. dollar (USD) up to 60 percent and 40 percent respectively.
This second phase comes after the achievement of all the objectives of the first phase, namely the increase of foreign currency liquidity on the domestic foreign exchange market and the appropriation by economic operators of the concept of foreign exchange risk.
MECHANISM OF QUOTATION OF THE DIRHAM
Bank Al-Maghrib sets and publishes daily, at the market opening, the limit rates of the fluctuation band of the dirham against the US dollar (USD/MAD), on the basis of a central rate deviated by 5 percent on both sides.
The central rate of the fluctuation band is determined from the basket of currencies composed of the euro and the US dollar (60 percent and 40 percent respectively) according to the following formula
1 USD = 1/ ((1/USD reference rate)*40 percent + [(1/EUR reference rate)*60 percent]* EUR/USD rate) MAD
Bank AL-Maghrib also publishes daily, at the market opening, the fluctuation band of foreign banknotes quoted against the dirham. The fluctuation margin is set at +/-7.5 percent compared to the central rate determined by Bank AL-Maghrib.
Bank Al-Maghrib updates the fluctuation band of the dirham against the dollar prior to each currency auction it organizes and in case of significant variation of the international exchange rates.
Bank Al-Maghrib sets and publishes, at 12:30 pm, the average reference exchange rate of the dirham in relation to the currencies quoted on the interbank market, on the basis of the quotations of the banks having the status of market makers and according to the method it publishes.
The fluctuation band, the rates of foreign banknotes as well as the reference exchange rates of the dirham are published daily on the website of Bank Al-Maghrib and on the financial information platforms Reuters and Bloomberg.