Middle East War: Bank Al‑Maghrib’s Monetary Dilemma

As Bank Al‑Maghrib’s meeting approaches, Médias24 once again reviews the main macroeconomic indicators to assess the possible scenarios for monetary policy.

Inflation, growth, expectations, employment, public finances, bank credit, liquidity, and foreign trade are all examined using the most recent data to determine the most likely decision in light of current conditions.

Inflation

As it stands, inflation does not call for monetary tightening. On the contrary, the dominant signal remains a clear easing of prices. In January 2026, the CPI fell by 0.8% year‑on‑year, driven by a 2.1% drop in food prices and a limited 0.4% increase in non‑food products.

The key point lies elsewhere. Core inflation — the most informative component for the central bank — stagnated on a monthly basis and declined by 1.2% year‑on‑year.

This means that price pressures remain low. In other words, there is no widespread domestic inflationary pressure at the end of January that would require a more restrictive stance from Bank Al-Maghrib.

Economic Growth

According to the High Commission for Planning's economic outlook, growth is expected to slightly accelerate in Q1-2026 to reach 4.2% on an annual basis, after 4% in the previous quarter. This dynamic would be driven by the recovery of agricultural activities, the resilience of services, and the continuous support of domestic demand.

Domestic demand would remain the main driver of activity. Consumption would remain strong. The same goes for investment, supported by public spending on infrastructure. Financing conditions would remain favorable, continuing to fuel productive investment.

This time, agriculture emerges as a supporting factor, with improved activity expected thanks to significant rainfall early in the season.

March precipitation has made the agricultural campaign more promising, including for horticulture, reshaping the macroeconomic outlook compared to periods when monetary policy was needed to offset weaker conditions.

Business surveys also reflect generally favorable expectations across services, trade, industry, and construction for the first quarter of 2026. They point to a moderate increase in activity, with no signs of a downturn, reinforcing the assessment of resilient growth without overheating.

Labor Market

In 2025, the labor market showed significant improvement, though recovery remains incomplete. The national economy created 193,000 jobs, after 82,000 the previous year.

This improvement is based on a net creation of 203,000 jobs in urban areas, while rural areas shed 10,000 positions.

Services generated 123,000 jobs, construction 64,000, and industry 46,000. However, agriculture, forestry, and fishing lost 41,000 jobs. The labor market confirms a recovery driven by non-agricultural activities, aligning with the overall trend of growth led by services, construction, and investment.

Unemployment edged down from 13.3% to 13% nationally. However, this reduction is insufficient to speak of a real change in the situation. Unemployment remains very high among youth, women, and graduates.

Underemployment has also worsened, increasing from 10.1% to 10.9%. This quantitative improvement has not been matched by qualitative gains.

Public Finances

By the end of January 2026, the budget deficit reached 9.6 billion MAD, compared to 6.9 billion MAD a year earlier. This evolution mainly reflects a decrease in revenues, while expenses have remained relatively stable.

Ordinary revenues decreased by 8.3% on an annual basis. This decline is mainly due to the base effect related to the voluntary tax regularization that occurred a year earlier, artificially inflating the comparison level, especially regarding income tax.

Excluding this exceptional element, the outlook is less negative. However, in the short term, the budget situation remains one of a higher deficit.

On the expenditure side, ordinary expenses decreased, mainly due to a significant drop in goods and services, linked to a base effect on transfers to the social protection support fund. However, debt interest costs increased significantly.

This is relevant for monetary analysis. When the cost of debt rises, the central bank has an additional reason to preserve its flexibility and avoid rate movements that could be perceived as premature or poorly synchronized with the overall environment.

Bank Credit and Monetary Statistics

Monetary conditions remain supportive. In January 2026, the M3 money supply increased by 10.3% on an annual basis, up from 9.4% in December. This acceleration reflects both the rise in official reserve assets and the improvement in bank credit to the non-financial sector.

Bank credit to the non‑financial sector rose 5.3% in January, compared to 4.7% in December. Private sector credit rose by 4%. Credits to private non-financial corporations accelerated to 3.7%, while household credits slightly slowed to 3.3%.

By economic object, the most notable dynamic remains that of equipment credits, up by 21.2%, confirming strong investment. Mortgage loans increased by 3.5%, and consumer credits by 3.8%.

Credit flows remain unconstrained, liquidity is rising, and investment is well funded. In these conditions, it is difficult to argue that a rate cut would be necessary in the very short term to stimulate credit. The credit channel is operational, even if not spectacularly so.

Foreign Trade

The main point of fragility remains foreign trade. By the end of January 2026, the trade deficit widened by 5.1%, reaching 25.5 billion MAD. Imports of goods held broadly stable, rising just 0.4%, while exports decreased by 2.7%.

The structure of imports, however, shows significant signals. Purchases of finished consumer goods increased by 17.1%, and those of finished equipment goods by 12.9%, reflecting both the maintenance of domestic demand and investment efforts.

On the other hand, the energy bill decreased by 19.5%, temporarily containing external pressure. This decline in energy imports is a favorable factor but potentially reversible if the current geopolitical shock on oil intensifies.

The services account remains a strong buffer. Travel revenues surged by 19.3% to 11.7 billion MAD. The surplus in the services balance increased by 15.4%. Remittances from Moroccans living abroad slightly decreased by 0.8%, while the net flow of FDI held steady, edging up 0.7%.

If we only consider internal indicators, a discussion about lowering the key rate could have remained open. Inflation is very low. The core component is even weaker. Monetary policy remains credible. And the transmission of the rate to the real economy remains slow and incomplete, not due to policy inefficiency, but to structural features of the economy that mitigate and delay its effects.

Certainly, monetary policy has a countercyclical purpose, but domestic data do not in any way justify a rate hike. Therefore, in an open economy like Morocco, heavily dependent on imports, external shocks always end up transmitting, especially through energy, inputs, and transportation costs.

The Middle East war has already significantly disrupted transit in the Strait of Hormuz, a strategic passage for a major part of global oil flows. The Brent prices recently hit $100 per barrel in trading, and markets now factor in a lasting risk of supply disruption.

The Moroccan economy is highly exposed to imported inflation. A sustained rise in oil directly increases the energy bill and then spreads to transport costs, certain industrial inputs, logistics, and more broadly to production and consumption prices.

It is precisely on this point that the current geopolitical and energy shock changes the economic outlook. Indeed, the war renders any rate cut difficult to justify, if not entirely off the table in the current context.

What Scenario for the Key Rate?

For the central bank, whose main mission is price stability, the main risk is a return of imported inflation. And this risk is real. Morocco has already experienced this in 2022 and 2023, with the war in Ukraine.

Imports represent over 52% of GDP in 2025. Any increase in energy prices has a domino effect on the prices of vital investment inputs, transport costs, and thus on transported goods, as well as on the food component, whose weight in the CPI can quickly drive up inflation.

Given the above, a rate cut is no longer part of the discussion and must be ruled out. Two options remain on the table, status quo or a hike. However, in the current situation, the status quo appears the most likely outcome.

Indeed, internal indicators show an economy still far from overheating, with a still negative output gap. Inflation decreased by 0.8% on an annual basis in January 2026, while core inflation stagnated on a monthly basis and decreased by 1.2% over a year, confirming the absence of widespread domestic inflationary pressures.