The central bank of Mauritius decided to hold its repo rate steady at 4.65 percent at a Monetary Policy Committee meeting yesterday.

A Reuters poll had forecast it would leave rates unchanged. The Bank of Mauritius has maintained the repo rate since June 2013, when the rate was cut by 25 basis points to stimulate growth.

However, the Bank of Mauritius noted that members of its monetary policy committee were “divided on the need to rapidly normalize the Key Repo Rate to address the risks to inflation and the excess liquidity situation while enhancing savings in the economy”.

The bank’s policy committee discussed alternative scenarios during its meeting, with some members expecting inflationary pressures to remain subdued and that economic recovery could be jeopardized by premature monetary policy tightening.

Other committee members had argued that domestic growth was firmly recovering while upside risks to inflation were rising and on the basis on unchanged rates, inflation could rise to 5 percent by the end of the first quarter of this year and end the year around 4.0 percent.

Ultimately, a majority of committee members voted to maintain the repo rate, but the bank said it would maintain “strong vigilance in monitoring economic and financial developments and stands ready to meet in between its regular meetings, if need arises”.

On the banking system, the central bank noted that high and rising excess liquidity had largely contributed to deteriorating conditions in banks.

Regarding inflation, the central bank noted that it rose to 4.0 percent in December from 3.1 percent in August. Besides, it also commented on the increase in core inflation, “reflecting underlying inflationary pressures in the economy” with prices of locally produced goods and services having a higher impact on inflation that prices of imported goods and services.

On the economy, the central bank noted that the island nation has continued to hold up well and economic output is estimated to be near its potential. The bank added that GDP growth was forecast to pick up to a range of 3.7-4.0 percent this year, an increase of 0.5-0.8 percentage points above the 2013 estimated growth of 3.2 percent.

On the global economy, the central bank noted that growth has picked up since the Monetary Policy Committee’s September 2013 meeting, with recovery taking hold in the US and UK.  It also observed that the Eurozone had emerged out of recession, “although growth is expected to remain weak and uneven”.

Image : The central bank, headed by Rundheersing Bheenick, noted that GDP growth was forecast to pick up to a range of 3.7-4.0 percent this year, an increase of 0.5-0.8 percentage points above the 2013 estimated growth of 3.2 percent.

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