MPC projects Real GDP growth to gain momentum in 2016
Minutes of the MPC meeting indicate that the key repo rate of 4.65% was reduced by 25 basis points to 4.40% to support domestic economic activity as global inflation remains benign amid subdued global economic activity, therefore there was sufficient space for monetary policy to provide an additional impetus to domestic growth and to provide the enabling environment for accelerating private investment, whereby the BoM mop excess liquidity through the issue of GoM Treasury Bills via an arrangement with the Ministry of Finance and Economic Development.
The Bank of Mauritius (BoM) released on 23 November 2015 the minutes of the 38th Monetary Policy Committee (MPC) meeting of 9 November 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 the revised 2015 and 2016 global growth projections contained in the October 2015 IMF’s World Economic Outlook (WEO), in which the growth performance of both advanced and emerging and developing economies were scaled down.
In addition, global inflation outturns moderated largely as a result of the persistent negative output gaps and declines in oil and commodity prices where global commodity prices dropped further due to supply glut conditions, weak global demand and a relatively strong US dollar.
Global financial markets witnessed heightened volatility with the stock market turmoil in China and expectations of the Fed’s normalisation of its monetary policy stance. Moreover, monetary policy stances across most economies remained greatly accommodative as several advanced and emerging economies reduced their key policy rates lately.
On the domestic front, the MPC highlighted Growth continued to remain below potential, where Statistics Mauritius revised down for the second time its growth projection for the economy, which was being estimated at 3.6% for 2015, slightly up from 3.5% in 2014 with Domestic activity weakened during 15Q2 compared to a year earlier.
Domestic inflation has remained at moderate levels on the back of subdued domestic demand conditions, low inflation in major trading partners and soft international commodity prices.
Excess liquidity in the domestic money market came down substantially since the last MPC meeting till mid-September 2015 but rose thereafter due to net redemption of securities. Excess liquidity dropped significantly from Rs12.0 billion to Rs5.6 billion before closing at Rs8.0 billion on 15 October. The average cash reserve ratio declined steadily from 11.7% on for the maintenance period ended 23 July 2015 to 9.9% for the period ended 3 September 2015 before rising to 10.6% for the period ended 15 October 2015.
Ms Heerah-Pampusa, Asssistant-Director, Forex Management Division, gave an update to MPC members on the status of the proposed new monetary policy operational framework.
She commented on changes that took place since the last MPC meeting. The Bank was no longer issuing Bank of Mauritius Bills for monetary policy purposes; but from September 2015 onwards, it started mopping excess liquidity through the issue of GoM Treasury Bills via an arrangement with the Ministry of Finance and Economic Development whereby the amount of Treasury Bills put on tender included an amount determined by the Bank.
The Bank would service the Treasury bills that were being issued for liquidity management purposes. She noted that, as a consequence, the yield curve reflected better market conditions. The Bank would continue to monitor developments in the 3-month Treasury bills rate, which would be the operational target for monetary policy under the new framework
Consequently, MPC members viewed that there was sufficient space for monetary policy to provide an additional impetus to domestic growth and to provide the enabling environment for accelerating private investment.
Given the uncertain global economic environment and low inflation in major trading partners and soft international commodity prices together with excess liquidity in the domestic market, members deemed it more appropriate to reduce the current monetary policy stance at this juncture were voting favoured towards trimming the key repo rate by 25 basis points to 4.40%.
It may be noted that the next meeting will be held on the 17th of February 2016.