Exchange rate risk management in Morocco, issues and strategies for companies

Attijariwafa Bank recently organized a webinar as part of the Rencontres de l’Entreprise, on the theme: “Exchange rate risk: how to activate the right levers?”. Participating in this event, Victor Lequillerier, head of economic studies at Bpifrance, highlighted the current situation of the exchange rate regime in Morocco and the strategies to better manage currency fluctuations.

Since 2020, Morocco’s previously strictly fixed exchange rate regime has been relaxed, allowing a 5% variation around a central rate. This regime is indexed to a basket of currencies composed of 60% euros and 40% dollars, reflecting Morocco’s economic integration into global value chains.

Victor Lequillerier stressed the importance of the Central Bank’s (BAM) monetary policy in stabilizing inflation, recently reaching the 2% target. BAM’s intervention has also been crucial in limiting the impact of global inflation and rising prices of imported goods, particularly following the crisis in Ukraine. However, the increase in interest rates in the United States has favored the appreciation of the dollar, requiring BAM intervention to maintain the stability of the dirham, according to Mr. Lequillerier.

Beyond monetary factors, Morocco’s integration into global value chains and the management of current account deficits also play a key role in the evolution of exchange rate risk. The support of the IMF, with a $5 billion loan granted in April 2023, has helped restore investor confidence and strengthen the country’s foreign exchange reserves.

For Mr. Lequillerier, the short-term outlook for Morocco remains mixed, with a combination of opportunities and challenges. While the country’s political stability and good reputation among international investors are major assets, Morocco will have to navigate an economic environment marked by rising interest rates, particularly in the eurozone. In the medium term, greater flexibility of the dirham is envisaged, which could increase volatility, but would also provide more room for maneuver for monetary policy.

A. Loudni

How can companies adapt to a constantly changing global economic environment to better control exchange rate risk?

According to Victor Lequillerier, despite the existence of currency risk hedging tools, such as those offered by financial institutions, some external repercussions, such as the crisis in Ukraine, are difficult to anticipate and fully control. Companies must remain vigilant, as unpredictable factors, including global events, can affect monetary and economic policies.

Mr. Lequillerier emphasizes the importance for Moroccan companies to adopt a careful reading of the main financial indicators, in particular those coming from the United States and Europe, because they strongly influence monetary policy decisions in Morocco. Good management requires the regular use of hedging tools and adaptation to developments in international markets.

However, he admits that there is no perfect solution to fully protect against exchange rate risks. Despite short-term volatility, he sees Morocco, thanks to its increasing integration into global value chains and its economic reforms, as well-positioned to mitigate the risks associated with currency fluctuations. This positive perception from outside reassures about the country’s ability to navigate this uncertain environment.