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Moroccan central bank holds key rate at 2.25%

Morocco's central bank maintained its key rate at 2.25% and said it "remains appropriate" with inflation expected to rise in the medium term and the global economy strengthening.

Bank Al-Maghrib forecasts headline inflation to reach 0.7% on average by the end of 2017, down from 1.6% in 2016, noting that the decrease in food prices has been slowing. The bank projects inflation to increase in the medium term, but stay within moderate levels, to 1.5% in 2018 and 1.6% in 2019.

Core inflation is expected to accelerate to 1.3% in 2017 from 0.8% in 2016, then climb to 1.5% in 2018 and 1.9% in 2019 due to robust domestic consumption and higher imported inflation.

The central bank said Morocco's economy will grow 4.1% in 2017 on the back of an acceleration in agricultural value and an improvement in nonagricultural activities, with the latter slowly recovering in the medium term. A good crop year pushed GDP in the second quarter to expand 4.2%.

Overall growth, assuming average crop years, will fall to 3% in 2018 and pick up pace to 3.6% in 2019. The economy will be largely supported by rebounding investment, although net exports are expected to post a slightly negative contribution to growth.

The fiscal deficit is projected to reach 3.5% of GDP by the end of 2017 due to higher corporate tax revenues, and will slide to nearly 3% of GDP for the next two years with further fiscal adjustments.