Mauritius holds repo rate steady at 4.65%
The Bank of Mauritius building (centre, foreground) in the capital city of Port Louis is the tallest tower in Mauritius.
The Bank of Mauritius decided to keep the key repo rate unchanged at 4.65 per cent at the meeting of its Monetary Policy Committee (MPC) on September 30. The island economy is expected to continue to face some headwinds from adverse economic conditions in main trading-partner countries, widely expected to culminate in a slightly negative output gap.
“The MPC maintains strong vigilance in monitoring economic and financial developments and stands ready to meet in between its regular meetings, if the need arises,” the bank noted.
Last week, Statistics Mauritius revised its growth forecast from 3.3 per cent to 3.2 per cent for 2013. In line with the slower-than-expected recovery, Bank of Mauritius also forecasts that domestic growth in 2013 will be within a 3.1-3.5 per cent range, slightly lower than the projected 3.2-3.7 per cent growth forecast at the June meeting.
Further, the MPC noted that inflation has declined sharply to 3.1 per cent in August 2013 on a year-on-year basis on the back of muted food and fuel prices, after hovering around 3.6 per cent since February 2013. However, risk of inflation continues unabated as wage rise in excess of inflation and productivity gains cannot be factored out. Accordingly, the central bank forecasts that inflation will stay within a range of 4.5 per cent to 4.9 per cent by December 2013, before rising to a range of 4.9 per cent to 5.5 per cent by June 2014.
The MPC also discussed alternative interest rate scenarios. A majority of members viewed that the key repo rate could be maintained at status quo to continue to provide support to the economy against the backdrop of contained inflation, which they expected to remain safely below the forecast rate. However, a minority view upside inflation risks as a tangible threat and raised serious concerns over excess liquidity prevailing in the money market and decline in public investment at a time when private investment had dropped significantly. They stressed on offering rates of interest in line with changing savings and consumption behaviour.
The members noted that the global economy has improved slightly since their June 2013 meeting. There have been some improvement in the US economy although the outlook remains clouded by the fiscal deadlock. The UK has picked up some momentum while the euro zone and Japan returned to positive growth. However, in several major emerging economies, including China and India, growth has slowed and looks unlikely to return to previous highs. Concurrently, global inflation has been broadly benign, below target inflation rates in developed economies but some emerging economies have recorded an increase in inflation as a result of currency depreciation.
Source: Bank of Mauritius