UPDATE 2-Morocco central bank cuts rates to shore up economy

(Adds reserve rate, government debt and comments)

By Ahmed Eljechtimi

RABAT, June 16 (Reuters) – Morocco’s central bank cut its benchmark interest rate by 50 basis points to 1.5% on Tuesday to help the economy recover from the impact of the coronavirus pandemic.

The bank also cut the reserve rate to 0% from 2%, a step it said would release 10 billion dirhams ($1 bln).

Inflation, mainly affected by food prices, is seen rising to 1% in 2020 from 0.2% in 2019, it said.

Economic growth is expected to plunge to -5.2% from +2.5% in 2019 on the back of the pandemic and a drought which reduced the country’s cereal harvest by 42% to 3 million tonnes.

Morocco has started easing the lockdown it imposed on March 20 to halt the spread of the virus, allowing many businesses to reopen, though not services such as cafes. Airports remain closed to international traffic.

Morocco’s hard currency inflows are expected to take a hit from a fall in exports, in remittances from Moroccans abroad, in foreign direct investments and travel receipts.

However, Morocco’s plan to issue an international bond will bolster foreign exchange reserves to 218.6 billion dirhams ($22.6 billion), enough to cover five months of import needs, the bank said.

Since the outbreak of the coronavirus, Morocco has raised $4 billion in foreign debt, including $3 billion offered by the International Monetary Fund under a precautionary liquidity line.

Government debt will surge to 75.3% of gross domestic product (GDP) in 2020 from 65% in 2019, the central bank said.

It also said it expected the fiscal deficit to reach 7.6% in 2020, up from 4.1% in 2019, as the government attempts to cushion the damage from the coronavirus lockdown.

Central bank governor Abdellatif Jouahri, speaking to reporters, did not rule out a further expansion of the dirham fluctuation band in the event of another major external shock.

“But I hope we will not be forced to do that,” he said. (Reporting by Ahmed Eljechtimi; Editing by Giles Elgood and Gareth Jones)