Image Image Image Image Image Image Image Image Image Image Image Image

AfricaMoney | August 20, 2017

Scroll to top

Top

No Comments

Bank of Mauritius to tackle the excess liquidity with its monetary policy instruments

Bank of Mauritius to tackle the excess liquidity with its monetary policy instruments

Despite the efforts of the fiscal and monetary authorities to address the problem, the excess liquidity prevailed in the banking system continues to affect the short-term interest rates. (Image: Office of State Revenue)

 

Bank of Mauritius (BoM) with the collaboration of the Ministry of Finance and Economic Development has pursued strong policy coordination to tackle the problem of excess liquidity using its monetary policy instruments, according to its October 2014 Inflation Report.

Despite the efforts of the fiscal and monetary authorities to address the problem, the excess liquidity prevailed in the banking system continues to affect the short-term interest rates.

The central bank’s October 2014 Inflation Report includes the macroeconomic projections underpinning monetary policy decisions by the Monetary Policy Committee on the Key Repo Rate (KRR), as well as the risk factors that could make these projections deviate from the baseline macroeconomic scenario.

As noted at the Monetary Policy Committee, the report highlighted that the KRR has remained unchanged at 4.65% since the April 2014 Inflation Report due to the balance of external and internal risks affecting the outlook for growth and inflation.

Even the international environment remains unstable, it is positive in terms of trends in international prices for food and energy, which knew a decline in the recent past.

Prudent macroeconomic management continues to strengthen fiscal performance in 2014, with the overall fiscal deficit as a share of GDP showing a decline between the first and second quarters of 2014, which is generally on target with the 2014 Budget estimates.

With output growth below potential, the output gap has remained negative whereas modest growth of final consumption and investment has been using limited demand-side inflationary pressures.

Additionally, the supply side factors affecting the inflation outlook remain limited at this stage.

The renewed threats of recession and very low inflation in the Eurozone, persistent economic and financial weaknesses in some large emerging economies that may have reduced their potential output growth, and dampening confidence associated with geopolitical tensions in Russia and Ukraine are the factors considered to affect the global growth.

Consequently, the global growth remains weak and uneven and it is expected to increase from 3.3% in 2014 to 3.8% in 2015, according to the October 2014 World Economic Outlook Update.

During the fourth quarter of 2014 and the first quarter of 2015, the central bank noted that the Consumer Price Index (CPI) inflation will drop marginally respectively to the annual inflation rate recorded in the third quarter of 2014, based on the Bank’s forecasting model and under the baseline scenario.

However, the CPI inflation will see an improvement in the remaining quarters of 2015 because of seasonal and other exogenous factors.

The domestic output gap is expected to maintain a negative flow throughout 2014-2015, based on the Bank’s forecasting model.

Furthermore, the report mentioned about the June forecast of annual GDP growth of Statistics Mauritius in its national accounts in September 2014, which is expected to be 3.5% in 2014 and which is maintained although the sectors’ contribution to growth changed between the two forecasts.

Hence, higher growth in public administration value added is projected to compensate for lower than earlier expected value added growth in construction, agriculture, arts and entertainment.

The Inflation Report believes that the domestic savings will principally finance the domestic investment, as a share of GDP, although the contribution of external savings will be lower than in earlier anticipations.

“Overall, the Bank of Mauritius staff assessment is that, for the first quarter of 2015, based on alternative model computations, the balance of risks to the inflation outlook is on the downside,” the report concluded.

Submit a Comment

Directory powered by Business Directory Plugin