Morocco’s Monetary Policy Transmission in the Wake of the COVID-19 Pandemic

Maximilien Queyranne, Daniel Baksa, Vassili Bazinas and Azhin Abdulkarim

No 2021/249, IMF Working Papers from International Monetary Fund

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.; monetary policy transmission; IMF working papers; transmission to the government yield curve; monetary policy shock; Real interest rates; Central bank policy rate; Deposit rates; Yield curve; Exchange rates; Global; Maghreb (search for similar items in EconPapers)
Pages: 37
Date: 2021-10-21
New Economics Papers: this item is included in nep-ara, nep-cba, nep-mac and nep-mon
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