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AfricaMoney | October 19, 2017

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Bank of Mauritius conducts operations to absorb excess liquidity from banking system

Bank of Mauritius conducts operations to absorb excess liquidity from banking system

The central bank of Mauritius is undertaking monetary policy operations for the absorption of excess liquidity from the banking system through foreign exchange interventions and issue of notes with the aim of   capturing Rs 20 billion of liquidity by December 2015.

As from 18 May 2015, the Bank of Mauritius has embarked on a programme of effective liquidity management in the banking system.

The Bank of Mauritius (BoM) has been conducting sterilised foreign exchange interventions on the domestic market since 20 January 2015 with a view to preventing an aggravation of the massive liquidity overhang in the banking system.

In line with this policy, a total amount of Rs 3.8 billion was sterilised by way of rupee deposits placed by banks with the BoM following foreign exchange interventions.

On 18 May 2015, BoM offered three-year Bank of Mauritius Notes on auction for an amount of Rs 3.0 billion and sterilised liquidity for that amount. The weighted yield on bids accepted was 2.76%, as against 2.50%, which is higher compared to the auction of the same maturity held on 22 April 2015.

Similar operations will be conducted by the BoM, with a view to capture around Rs 20 billion of liquidity by the end of December 2015.

In the course of the year, the auction of Bank of Mauritius papers will depend on how the market responds, in terms of interest rate structure, to the liquidity management operations of the Bank.

BoM, as the sole supplier of high-powered money, considers that a gradual reduction in the volume of excess liquidity will steadily allow it to steer short-term interest rates in the appropriate direction.

Finally, this improved ability to affect short-term interest rates should allow the BoM to positively influence the market interest rate structure and, eventually, lead to better transmission of monetary policy signals.

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