Key Rate: Market Lacks Consensus Ahead of BAM Meeting

The majority of participants, approximately 80%, believe that the central bank's target rate will be 2% in 2026. Furthermore, all participants plan to prioritize equity markets in their allocations, according to a recent research note. This meeting takes place in a context where domestic signals are strengthening, while global uncertainties persist. According to BKGR, the Moroccan economy continues to demonstrate solid dynamics, supported by a recovery in non-agricultural sectors, an expected improvement in agricultural production, and particularly low inflation. Internationally, geopolitical tensions and changes in monetary policy, especially from the U.S. Federal Reserve, contribute to limited visibility. Bank Al-Maghrib forecasts a growth rate of 4.6% for 2025, driven by public investment, infrastructure projects, and external demand. In 2026, GDP is expected to grow by 4.4%, as indicated in the note. The agricultural forecast is based on a cereal harvest of 41 million quintals in 2025 and 50 million in 2026, while non-agricultural sectors are projected to grow around 4.5% in both years. BKGR has slightly revised its own estimates, now predicting growth of 4.5% in 2025 and 5% in 2026, due to favorable economic indicators. Inflation remains at a very low level, with a year-on-year increase of +0.1% at the end of October 2025, marking the lowest point since March 2021. Core inflation has decreased by 0.2% month-on-month, as noted by BKGR. However, potential risks for an increase in inflation have been identified, including: - Changes in U.S. tariff measures that could influence commodity prices; - Ongoing disruptions in the Red Sea; - Volatility in international agricultural markets; - The potential second adjustment of butane gas prices, although this is not expected to be implemented in 2026 according to the government. Regarding public finances, the budget deficit stood at 55.5 billion dirhams at the end of October, better than anticipated in the 2025 finance law. Ordinary revenues increased by 16.4%, while expenditures rose by 17.5%, with compensation costs decreasing to 10 billion dirhams. According to BAM's projections, as relayed by BKGR, the deficit is expected to stabilize around 3.9% of GDP in 2025 before improving to 3.4% in 2026. Additionally, the average lending rate was recorded at 4.85% in the third quarter, reflecting a year-on-year decrease of 36 basis points. The total amount of bank credit increased by 4.9%, reaching 1,188 billion dirhams in October, according to data compiled by BKGR. In the bond market, the downward trend in primary rates has continued in recent months, followed by a slight increase in short- and medium-term maturities, linked to a tighter budgetary context, as noted by the research office. In an environment where inflation remains low and the economy shows a need for financial support, a reduction in the key rate could theoretically be justified. However, BKGR analysts believe that external uncertainties and the need to consolidate recent signals advocate for a cautious approach. Thus, the scenario of maintaining the key rate appears to be the most likely hypothesis, preserving BAM's maneuvering space for 2026, a year expected to mark the transition to an inflation targeting regime.