Morocco's Monetary Policy Transmission in the Wake of the Covid-19 Pandemic

37 Pages Posted: 4 Feb 2022

See all articles by Maximilien Queyranne

Maximilien Queyranne

International Monetary Fund (IMF)

Daniel Baksa

International Monetary Fund (IMF)

Azhin Abdulkarim

Independent

Vassili Bazinas

International Monetary Fund (IMF)

Date Written: October 1, 2021

Abstract

This paper finds that the neutral interest rate has been on a downward trajectory in Morocco since the global financial crisis and may have fallen in the wake of the pandemic. In that context, monetary policy transmission to output and prices appears relatively muted given limited exchange rate flexibility until recently. Also, monetary policy transmission to some market rates has somewhat weakened in the wake of the pandemic. A lower natural rate and low policy rates raise the question of whether further rate reductions would impair the banking system. We find that the sensitivity of cash demand to deposit rates is low, implying limited risks that banks would lose funding with further reductions. A reliance on checking and savings accounts for funding may impair monetary pass-through, however. If monetary policy reaches its effective lower bound, limited and credible recourse to an asset purchase program could usefully complement conventional measures and strengthen monetary policy transmission under an inflation-targeting regime with a flexible exchange rate.

Keywords: Monetary policy, neutral interest rate, unconventional monetary policy.

JEL Classification: E40, E50

Suggested Citation

Queyranne, Maximilien and Baksa, Daniel and Abdulkarim, Azhin and Bazinas, Vassili, Morocco's Monetary Policy Transmission in the Wake of the Covid-19 Pandemic (October 1, 2021). IMF Working Paper No. 2021/249, Available at SSRN: https://ssrn.com/abstract=4026477

Maximilien Queyranne (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Daniel Baksa

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Azhin Abdulkarim

Independent

Vassili Bazinas

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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