BoM keeps key repo rate unchanged at 4.65%; Mauritian growth forecast revised to 3.7%
With advanced and emerging economies failing to register expected growth rates, even as domestic inflation remains under control, and is even decreasing, the Monetary Policy Committee of the Bank of Mauritius decided to maintain thekey repo rate at 4.65% but the central bank revised the GDP growth forecast for the island economy down to 3.7%.(Image:ionnews.mu)
The Monetary Policy Committee (MPC) of the Bank of Mauritius (BoM) has unanimously decided to keep the Key Repo Rate (KRR) unchanged at 4.65% per annum at its meeting heldyesterday, 16 July 2015.
The MPC noted that global growth remains moderate and disparate across regions. The International Monetary Fund (IMF) has revisedglobal growth forecasts down to 3.3% for 2015 and pointed to a gradual recovery in advanced economies whilst growth in emerging market and developing economies is projected to slow down.
Sluggish economic conditions as well as low international commodity prices continue to indicate a benign global inflation outlook. Unfavourable external developments, amongst other factors, continue to weigh on the domestic economic outlook.
Ramesh Basant Roi, the governor of the Central Bank, also admits that the growth ambitions of the country must be revised downwards for this year. Aligning betterwith Statistics Mauritius’ forecasts, the BoM considers that the local economy will grow by 3.7% this year, below the optimistic 5% growth rateforecast by the government. The reason for the downtrend is explained in particular by a write-up on insufficient investment in the country that has been authored bylocal economist Pierre Dinan, a member of the MPC.
With the pace of domestic investment yet to pick up, Statistics Mauritius had revised the economy’s real GDP growth rate for 2015 down from 4.1% to 3.8%, while the Bank has now revised its growth forecast down to 3.7%.
Looking ahead, a gradual recovery in key export markets and the implementation of major investment projects is expected topositively impact the economy. The MPC raised concerns about the heightened market volatility stemming from a slowdown in emerging markets, particularly China, the uncertainties caused by the Greek crisis in the Eurozone, and diverging monetary policies across regions.
Inflation continues to decline since the April 2015 MPC meeting. Barring any unforeseen shock, headline inflation is forecast to decline to around 1.5% in 2015, partly attributable to domestic price developments, before rising to around 3.0% in 2016.
The MPC underscored that recent fluctuations in the rupee’s exchange rate did not have a negative impact on domestic price levels. Year-on-year inflation is forecast at around 2.0% in end-2015 and around 4.4% in end-2016.
The MPC weighed the risks to the growth and inflation outlook over the relevant policy horizon and considered the KRR to be appropriate at the current juncture. The MPC took note of the Bank’s sterilised interventions since January 2015 and active liquidity management since May 2015, which is restoring orderly money market conditions.
The MPC also considered a draft proposal to review the Operational Framework for Monetary Policy. The new operational framework, in which the KRR and the 3-month yield on Treasury/BoM bills will play a critical role, is intended to improve the transmission of monetary policy impulses to the real sector of the economy.