A research study, conducted by two research professors in economics and finance at Ibn Tofail University – Kenitra, observed “the weak transmission of the effect of reducing the main interest rate to the real economy in Morocco,” considering that “it is not a simple defect in the intervention mechanism, but rather the result of structural accumulations that include the nature of the banking system, the composition of the economy and the social and cultural environment.”
The study confirmed in its conclusions and recommendations, which Hespress extrapolated within a recent report issued by the “Moroccan Center for Research and Policy Analysis,” that this issue now “requires a comprehensive and integrated vision for reform: only close cooperation between various economic actors and public institutions, under the umbrella of a clear national vision, can give monetary policy its desired effectiveness, and make it a real tool for growth and stability.”
In light of a “detailed analysis” by university professors Younes Ait Ahmadouche and Aziz Bensabahou, for which they chose the title “The Limitation of the Bank of Morocco’s Monetary Policy on the Real Economy: The Case of Reducing the Key Interest Rate,” specifically due to the weak transmission of the effect of the key interest rate to real economic variables such as investment, consumption, job creation, and business financing, the researchers drew a set of fundamental conclusions, which highlight, according to them, “the limits of the effectiveness of monetary policy in the current Moroccan context,” before “proposing a set of recommendations.” Aiming to address this structural imbalance.”
“Excessive profit-making behavior”
The two research professors believe that “it is clear that the Moroccan banking system, despite the reforms it has witnessed, is still operating within the framework of an oligopoly-dominated market, which gives banks high negotiating power and the ability to control borrowing conditions regardless of the direction of monetary policy,” adding by explaining: “Banks do not react to a decline in the key interest rate with the same intensity as they react to its rise, because they seek to maintain a high profit margin and even exploit opportunities to increase it.” This excessive and obscene profitable behavior undermines the function of monetary policy as a catalyst for economic growth, and makes its impact weak in the short and medium term.”
The research paper stressed that “monetary policy, no matter how effective it is from a technical standpoint, cannot bring about a transformation in the real economy if there is not a comprehensive environment that enables it to reach all economic actors. Here the pivotal role of other accompanying policies emerges: such as social policies, financial inclusion policies, legal and tax reforms, and simplifying financing procedures that enable increasing the size of the formal economy and expanding the social base benefiting from bank financing, whether individuals or small enterprises.”
Investing in financial education
The two experts considered, “Improving financial culture and banking awareness is a crucial element to enhance response to interest rate changes. Groups that are not accustomed to using banking services, or who do not trust them, cannot respond to lower interest rates if they do not have sufficient knowledge of their rights and duties, available financing mechanisms, and how to manage risks. Hence, investing in financial education, from school to civil society, is considered a major priority.”
They also recommended “developing financing alternatives, such as participatory financing, green financing, and digital financing channels, which can reduce the focus of monetary policy on the classical banking channel, and open the way for more flexible and influential investment tools, especially among young people and those with innovative projects. This diversification would improve the transition from monetary policy to the real economy, through more open and specialized financing channels.”
In a significant context, Ait Ahmadouche and Bensabahou said, “The Bank of Morocco must continue its efforts to improve transparency and communication, whether with the banking sector or with economic actors and civil society. The clearer the objectives of monetary policy are, and announced periodically and systematically, the higher the degree of interaction with them and the greater the ability of markets and actors in them to adapt to changes in interest rates and their future expectations. Monetary policy today is no longer merely a technical management of liquidity, but rather has become, in essence, a policy based on expectations and signals directed to actors.” Economists.”
“Monetary policy must be accompanied by an active and coordinated fiscal policy that enables effective demand creation, support of productive sectors, and improvement of the investment climate. The absence of coordination between monetary, fiscal, and budgetary policies may lead to conflicting results, as the former attempts to reduce interest rates to stimulate growth, while the latter adopts austerity measures that limit public spending. Monetary policy cannot achieve its goals in the absence of stimulating public spending, a fair tax system, or an integrated development vision.”
“Review of banking laws”
According to the same source, “It is assumed that some components of the legal framework regulating the work of banks will be reconsidered in order to enhance competition, limit and prevent monopoly, and ensure an effective transmission of interest rate changes towards lending rates, especially in periods of deflation or crises.”
It is also possible, in the words of their recommendations, “to think about establishing a mechanism to measure the speed and degree of transmission of monetary policy to the market, and to publish its results periodically, in order to raise the level of accountability and transparency.”
The researchers concluded, “In light of the rapid global changes, we should think about modernizing the monetary policy tools themselves, and gradually moving towards the ‘flexible inflation targeting’ model, which takes into account not only prices, but also growth, employment, and financial stability.”
In summary, he said, “Digitization, artificial intelligence, and digital currencies force the central bank today to rethink its operating model and develop new tools for control and financing that respond to the specificities of the digital age.”
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