Mauritius could position itself to become the first trading hub in Africa for China’s currency, the Renminbi (RMB), as trade between the rising Asian economy and the African continent has increased ten-fold over the last ten years.
This statement was issued by Ashok Aubeeluck, Head of the Economic Analysis & Publications Division of the Bank, at the 35th meeting of the Monetary Policy Committee (MPC), which was held on October 27, 2014 and chaired by Governor Rundheersing Bheenick. The minutes of meeting were published on November 10.
Aubeeluck also noted that trade between China and Africa is forecasted to double by 2020 from USD 200 billion to USD 400 billion.
Incidentally, the world over, the status of an RMB trading hub is becoming increasingly important for global financial centres, as regional financial hubs such as Hong Kong, Singapore, Frankfurt and London, among others, vie with each other over efficient RMB settling and clearing services.
To put matters in context, a regional RMB hub in Mauritius will make the use of renminbi in Africa-China trade, commerce, and investment easier for Mauritian financial institutions and their customers. For African firms doing business in China, using renminbi can be more efficient than using a currency of an unrelated country, typically the US dollar. A Mauritius-based RMB hub can also help expand the range of financial products and services denominated in the Chinese currency, further helping African firms to do business in China.
Moving on, Aubeeluck also reflected that the domestic banking sector is currently facing certain risks and challenges such as non-performing loans, loan concentration, excess liquidity and technology risk.
He advised that is is urgent to address this issue of excess liquidity as well as to monitor closely the rising non-performing loans in a low interest rate environment for financial stability considerations.
Acting Deputy Financial Secretary Patrick Yip mentioned that the Ministry of Finance and Economic Development (MOFED) took note of the guidance adopted by the MPC at its July 2014 meeting to reduce uncertainty among economic operators.
He added that coordination of macroeconomic policies between the Bank and MOFED was on track.
Additionally, a Memorandum of Understanding on liquidity management and policy coordination would soon be finalised.
Suttyhudeo Tengur, president of Association for the Protection of the Environment & Consumers (APEC), noted more downside risks to inflation arising from subdued global commodity prices compared to upside risks from the recent strength of the US dollar against the rupee.
He argued that the Key Repo Rate (KRR) should remain unchanged because of the current situation.
MPC members also noted that, despite global output recovery from 3.3% in 2014 to 3.8% in 2015 as indicated in the IMF’s October 2014 WEO, growth would remain uneven across countries and regions.
The MPC reflected on the potential outcome of exits from accommodative monetary policies and observed that global inflation remained beneficent amidst stable international oil and food prices.
The apprehension of build-ups in financial sector excesses in advanced economies and the risks that such excesses posed have been taken into consideration.
Political developments are affecting the domestic economic environment, which will result in uncertainty over the next four to five months.
Members noted the strong performance of the economy during the second quarter of 2014, which was partly led by a higher than expected performance in ‘public administration.’ A higher growth of 4.6% was estimated for the second quarter of the year.
For the same period, the committee noted that labour market conditions remained unchanged while the unemployment rate declined from 8.0% in the first quarter to 7.8% in the second quarter of 2014.
The committee acknowledged on the point that there were little inflationary pressures that would cause risks to inflation until the end of 2014.
Members viewed that the build-up in domestic wage pressures ought to be contained, in the absence of which, there were viable fears that domestic inflation would exceed imported inflation very rapidly.
Another negative sign was the downward spiral in the savings rate, which fell from 13.0% in 2011 to 11.8% in 2013 and was again expected to go down to 11.6% in 2014.
Also, some members reflected on rising income inequality and the distribution of growth in the economy.
Some members noted the challenge of excessive leverage of a few domestic companies, which could be resolved through debt restructuring and injection of additional capital into the corporate sector.
Interest rates will need to be normalised over time to protect against risks to financial stability and to address the low domestic savings rate, according to some members.
Finally, the KRR has been voted to remain unchanged at 4.65% per annum, corresponding to the approach adopted at the July 2014 MPC meeting.
The minutes of the meeting ended on the note that the MPC continues to monitor economic and financial developments and stands ready to meet in between its regular meetings, if the need arises.
The members present were Yandraduth Googoolye, First Deputy Governor; Issa Soormally, Second Deputy Governor; along with the External Members Nissan Degnarain, Pierre Dinan, and Hemraz Oopuddhye Jankee.
Professors Silvana Tenreyro and Jeffrey Frankel, who are External Members, assisted the meeting via a video conference.
Dr Streevarsen Narrainen, Senior Economic Adviser at the Ministry of Finance and Economic Development, and Neetyanand Kowlessur, Chief-Economic Research Division at the BoM, were observers of the meeting.
This was the last MPC meeting for 2014, with the next meeting being scheduled for Monday, February 9, 2015.
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