MPC projects favourable economic conditions for Mauritius in 2015
Minutes of the MPC meeting indicate that the key repo rate of 4.65% was maintained upon the recent budgetary measures announced to kick-start investment amid subdued inflation, whereby the BoM would come up with a new monetary policy framework to mop up the excess liquidity in the banking system in a phased manner.
The Bank of Mauritius (BoM) released on 20 April 2015 the minutes of the 36th Monetary Policy Committee (MPC) meeting of 6 April 2015 which was chaired by governor Ramesh Basant Roi in the presence of other members, where they discussed reports of economic and financial development.
Discussion regarding the international economic environment hovered around global growth projections set out in January 2015′s update of the IMF’s World Economic Outlook, in which global growth was scaled down 3.5% and 3.7% for 2015 and 2016 and also on low inflation, leading to another global round of monetary policy easing.
In addition, currency markets discussion reflected the contrast between the major central banks’ policy outlook, with the US considering its first hike this year while policy outlook is expected to remain ultra-loose in Europe and Japan.
On the domestic front, the MPC highlighted the latest issue of national accounts in March 2015, and growth rate forecasts for 2015 at around 4.1 per cent by Statistics Mauritius. Besides, they noted that the significant excess liquidity in the banking system continued to depress money market interest rates.
The governor briefed MPC members on the Bank’s current monetary policy operational framework and the disconnection between the key repo rate and interest rates in the domestic money market.
Basant Roi stated that “the excess liquidity in the banking system was driving the yields on Government papers down and thus, the interest rate structure was distorted.”
Consequently, he announced that the Bank would come up with a new monetary policy framework and undertake to mop up the excess liquidity in the banking system in a phased manner and it is expected that money market interest rates would move in line with the key repo rate.
Members commended the move to improve the effectiveness of the monetary policy framework. The MPC observed that the domestic economy was gathering momentum and would perform better than 2014 where members were of the opinion that that CPI inflation would remain modest in 2015, barring any exceptional developments.
Given the uncertain global economic environment and the recent budgetary measures announced to kick-start investment amid subdued inflation, members deemed it more appropriate to maintain the current monetary policy stance at this juncture were voting favoured towards keeping the key repo rate unchanged at 4.654%.
It may be noted that the next meeting will be held on the 16th of July 2015.