September 26, 2017 / 1:48 PM / a year ago

UPDATE 1-Moroccan central bank holds benchmark rate at 2.25 pct

(Adds details and background)

RABAT, Sept 26 (Reuters) - Morocco’s central bank kept its benchmark interest rate unchanged at 2.25 percent on Tuesday, saying inflation has slowed as a result of the decline in volatile food prices.

The bank, known as Bank al-Maghrib, said inflation fell from 1.9 percent in the first two months to 0.2 percent on average in the following six months in 2017.

As agricultural output rose from North Africa’s worst drought in decades last year, the bank said growth would jump to 4.3 percent this year from an estimated 1.2 percent in 2016. It is expected to reach 3.1 in 2018, the bank said.

The bank said it expects the budget deficit to reach 3.5 percent of GDP in 2017, before decreasing slightly to 3.2 in 2018. The government is forecasting a deficit of 3.5 percent in 2017 and 3 percent in 2018.

Morocco’s trade deficit widened by 4 percent of gross domestic product (GDP) in the first eight months of 2017, the bank said, as a result of a high energy bill. Morocco is the biggest energy importer in the region.

The current account deficit is expected to ease from 4.4 percent of GDP in 2016, to 3.9 percent in 2017 and 4 percent in 2018, as remittances from the 4.5 million Moroccans living abroad are expected to improve.

Last June, Morocco delayed the first phase of liberalising the dirham currency, an IMF-backed reform to strengthen the North African kingdom’s economy.

Authorities are planning to widen the official bands for fluctuation of the dirham by 2.5 percent each way, from 0.6 percent, then fully remove the peg in a process that could take several years, depending on the market response. (Reporting By Zakia Abdennebi, writing by Aziz El Yaakoubi; Editing by Janet Lawrence and Andrew Heavens)

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