UPDATE 2-Morocco’s central bank cuts benchmark interest rate to 2%

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RABAT, March 17 (Reuters) - Morocco’s central bank cut its benchmark interest rate on Tuesday by 25 basis points to 2%, saying the move would help shore up economic activity following drought and the outbreak of coronavirus.

Morocco’s economy is now expected to grow by 2.3% in 2020 rather than by the 3.8% previously forecast, the bank said in a statement following its quarterly board meeting. Morocco’s economy grew by 2.3% in 2019.

Inflation, affected mainly by food prices, will rise to 0.6% in 2020, from 0,3% in 2019, it said.

Drought slashed estimates of Morocco’s cereals output to 4 million tonnes, the bank said.

The coronavirus outbreak has prompted Morocco to suspend all international flights and to close schools, mosques, non-essential shops, restaurants and cafes.

Morocco will also create a fund worth 10 billion dirhams ($1 billion) to upgrade health infrastructure, maintain jobs and mitigate the social repercussions of the outbreak.

Both the textile and tourism sectors are likely to be hit hard by the travel restrictions. Tourism represents 11% of Morocco’s economy, with 13 million tourists arriving in 2019.

The current account deficit will be narrowed to 3.5% of gross domestic product from 4.4% last year on the back of a rise in exports.

Taking into account an international bond Morocco plans to issue this year, foreign exchange reserves will grow to 246 billion Moroccan dirhams ($25.5 billion) in 2020 from 245.6 billion dirhams in 2019, enough to cover five months of imports.

“These forecasts are likely to be reviewed if coronavirus is not contained in the short-term,” central bank governor Abdellatif Jouahri said.

Government debt will expand from 66.1% of GDP in 2019 to 67.2% in 2020, according to the central bank. (Reporting by Ahmed Eljechtimi; Editing by Alex Richardson, Gareth Jones, Editing by William Maclean)