By Ola Galal

SANAA (Reuters) - Inflation in Morocco is expected to remain steady at 2 percent until at least 2012, helped by the government's subsidies programme, a senior official of the ministry of economy and finance said on Thursday.

"Due to the government's monetary and fiscal policy, mainly subsidising basic commodities, inflation this year will be steady at 2 percent and we plan to keep it that way until at least 2012," the ministry's Secretary-General Abdeltif Loudyi told Reuters on the sidelines of a conference in Sanaa.

Year-on-year inflation in Morocco hit 2.4 percent in February, up from 1.7 percent in January, due to higher food prices, according to the country's High Planning Commission.

Morocco's dirham is based on a basket of currencies, including the Euro and the dollar, determined on basis of the country's international trade transactions. More than 65 percent of Morocco's external trade is Euro-denominated and about 30 percent in U.S. dollars, Loudyi said.

Morocco is not concerned about the slowdown in the U.S. economy as the kingdom, a former French colony, has stronger trade ties to the European Union than to the United States, he said.

GDP at fixed prices is expected to reach 6 percent this year, up from 2.2 percent in 2007, driven by an improved grains output, Loudyi said.

The North African country's gross domestic product growth shrank to 2.1 percent in the fourth quarter last year from 8.1 percent in the same period of 2006 as the key farming sector contracted sharply, the High Planning Commission said this week.

The agriculture industry declined 19.4 percent in the fourth quarter compared with 23.7 percent growth in the same period in 2006, it added.

The farming industry accounts for up to one-fifth of Morocco's gross domestic product and provides almost half the jobs for the country's 11 million-strong workforce, according to official figures.

A severe drought slashed Morocco's cereals harvest to 2.0 million tonnes in 2007 from 8.3 million tonnes in the previous year when overall economic growth was 8.1 percent.

The government expects a harvest of 6 million tonnes this summer.

Foreign direct investment is expected to reach at least $5 billion in 2008, up from $4 billion the previous year, Loudyi said.