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AfricaMoney | August 21, 2017

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Mauritius key repo rate held steady at 4.65% per annum

Mauritius key repo rate held steady at 4.65% per annum

Mauritius’ central bank announced that during its meeting on Monday July 14, 2014 that the MPC took a call to hold the key repo rate steady against a background of subdued global and domestic inflationary pressures.(Image: African Markets)

Mauritius’ Monetary Policy Committee (MPC) has decided to keep the key repo rate (KRR) unchanged at 4.65% per annum.

It may be noted that Bank of Mauritius (BOM) Governor Rundheersing Bheenick has been arguing in favour of an increase in the key repo rate to spur savings and contain inflation.

In fact, there have been public disagreements between the central bank and the Finance Ministry, due to the five external members of the MPC from the ministry outvoting the three BOM members to hold the key repo rate steady at the last meeting held in April 2014.

Mauritius’ central bank announced that during its meeting on Monday July 14, 2014 that the MPC took a call to hold the KRR steady against a background of subdued global and domestic inflationary pressures.

Since the last MPC meeting held in April 2014, economic activity across the globe has continued to be reinforced, although the extent of the recovery is still uncertain and uneven across the island’s main trading partners.

“The US and UK economies are recovering relatively strongly while prospects for the Eurozone and emerging market economies remain sluggish. Global inflation has remained muted given the moderate evolution of commodity and energy prices,” the MPC noted in its minutes.

Members of the MPC are worried about the slow local economic growth for the first half of 2014 as it is the worst first quarter performance of the last five years and they anticipate that there might be improvement in the second half of 2014 in line with improving economic conditions in the main trading-partner countries.

“The MPC foresees maintaining this monetary policy stance up to the end of this year on the assumption that headline inflation will stay at or below 4 per cent and y-o-y inflation at or below 3.5 per cent, leaving aside unexpected supply shocks,” the central bank noted in a communique.

However, the Bank of Mauritius (BoM) declared that downside risks to growth outlook persist and the MPC was concerned about failure in the monetary policy transmission mechanism.

During the discussion on interest rate normalization among the MPC members, a majority had the opinion that this process needs to be started, even though there was some disagreement on its pace and timing.

On the other hand, some members believe the KRR would need to be raised by at least 25 basis points at the first meeting of 2015, following the presentation of Budget 2015.

This approach is estimated to lessen uncertainty among economic operators and provide them guidance on their savings, investment and consumption decisions.

The MPC maintains strong caution in monitoring economic and financial developments and stands ready to meet in between its regular meetings, if the need arises.

The members noted that the committee will meet again to review its stance in case of unexpected price and real sector developments.

Besides, BoM has revised its growth forecast for 2014 to a range between 3.4-3.6% in place of the higher range of 3.4-3.7% in light of latest developments in the real economy.

It may be noted that Statistics Mauritius recently revised growth forecast for 2014 down by 0.2 percentage points from 3.7% to 3.5%.

In parallel, the year-on-year inflation continued to drop, from 4.5 per cent in March 2014 to 3.3 per cent in June 2014 helped by a moderation in food prices, especially fresh vegetables, and stability in energy prices.

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