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AfricaMoney | August 22, 2017

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Bank of Mauritius says excess liquidity came down to Rs 7.86 billion in July

Bank of Mauritius says excess liquidity came down to Rs 7.86 billion in July

Several bond issuances were undertaken by BoM to absorb extra money in the banking system and reduce excess liquidity, which has been a pressing issue since December 2013. (Image: Numismondo)

Mauritius’ central bank noted that excess liquidity plunged to Rs 7.86 billion on July 10, 2014, representing a 21.31% dip on Rs 9.98 billion as on June 26, 2014.

Recent data released by the Central Bank showed that all banks taken together held cash balances of Rs 36.45 billion against requirement of Rs 28.59 billion under the Cash Reserve Ratio (CRR), indicating excess liquidity of Rs 7.86 billion as on July 10, 2014.

Several bond issuances were undertaken by BoM to absorb extra money in the banking system and reduce excess liquidity, which has been a pressing issue since December 2013.

Excess liquidity can destablize an economy as it implies that there is too much capital looking out and too few investment avenues for it, or too much money chasing too few goods. This can lead to inflation, and erode the purchasing power of consumers.

Also, with effect from the maintenance period starting May 2, 2014, the central bank raised the average CRR on rupee deposits from 8% to 9%.

Under the CRR, commercial banks essentially have to keep a percentage of their deposits with the central bank without obtaining any profit on the money deposited at the BoM.

The deposit base for the period ended July 10, 2014 was Rs 338.12 billion while average cash balances held by banks with BoM were equivalent to 10.78% of the deposit base (or around Rs 36.45 billion) against a CRR of 9%.

It may be noted that there has been tremendous improvement in the excess liquidity situation since end-January 2014 when excess liquidity hit a high of Rs 11.03 billion and the central bank had to resort to an emergency reverse repo transaction of Rs 1 billion.

Furthermore, the central bank continues to issue, at a sustained pace, Government of Mauritius (GoM) bonds, to try and resolve a part of the excess of liquidity.

Considered as safe investments guaranteed by the government, GoM bonds continue to arouse interest among the investing public, helping keep excess liquidity in check.

Besides, an 11 July 2014 survey released yesterday by the central bank on its assets and liabilities showed that net foreign assets are estimated at Rs 120.73 billion.

Claims on other depository corporations amounted to Rs 1.77 billion while the net claims on central government stood at Rs 19.04 billion

Further, according to BoM, the monetary base is estimated at Rs 62.65 billion including Rs 25.87 billion currency in circulation, Rs 36.66 billion liabilities to other depository corporations and Rs 119 million of liabilities to other sectors.

Finally, Central Bank data showed that shares and other equity, which is essentially equity capital and reserve complied by the bank consisting of equity, general and special reserves, stood at the level of Rs 22.53 billion.

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