Mauritius needs to raise interest rates to meet year-end inflation target of 4%
According to the Governor, the year-on-year inflation rate would slow to around 4% by December from 5.6% in February if the bank’s benchmark repo rate was hiked by 50 basis points from its current level of 4.65%. (Image: Marie-Lorry Coret)
To meet its year-end inflation target of 4 per cent and begin halting a decade-long decline in saving levels, Mauritius needs to raise it interest rates, stated Central Governor of Bank of Mauritius, Rundheersing Bheenick, last Friday.
According to the Governor, the year-on-year inflation rate would slow to around 4% by December from 5.6% in February if the bank’s benchmark repo rate was hiked by 50 basis points from its current level of 4.65%.
It may be noted that the repo rate was kept unchanged after the meeting of the Monetary Policy Committee (MPC) on September 30, 2013, though the Governor pressed hard for a rise in interest rates.
Monetary policy has fallen “hopelessly behind the curve”, said the Governor, in a telephone interview with international news agency, Reuters.
Bheenick told Reuters that he was worried by the jump in consumer prices over the past three months. The Consumer Price Index released on the Statistics Mauritius website, stood at 105.3 in December 2013, but registered a net increase of 3.2 points to reach 108.5 in February 2014.
Moreover, the import-dependent Indian Ocean Island could expect increased external pressures with inflation picking up in developed economies, he noted.
“We are a very open economy, so we should be able to take measures to try to contain the knock-on effects on domestic inflation,” said Bheenick.
However, he did not mentioned where inflation would end the year on a no-policy change basis, but rather mentioned that the central bank data showed a range of 3.5-6.5 per cent based on different policy outcomes.
A higher key lending rate would also encourage commercial banks to raise their own rates on deposits, which Bheenick said currently sits some 200 basis points below inflation.
“As for now, the thing to take into account is that we are hopelessly behind the curve. Real rates of return are negative and this is where you do not want to be,” he added.
Meanwhile, the results of the Treasury bill auction held on March 28, 2014 were released by the Bank of Mauritius where a slight decrease on the return on investment was noticed.
The weighted average yield on Mauritius 91-day Treasury bills fell to 2.78% from 3.04% at a previous sale on Febuary 07, 2014.
In addition, the Bank of Mauritius sold all the Rs 600 million ($19.93 million) worth of bills it offered.
Investors bid for bills worth Rs 1.94 billion at yields ranging from 3.70% to 2.73%.