In another twist to the excess liquidity tale, the finance ministry has openly differed with the central bank Governor’s stance on increasing the repo rate.

While the Monetary Policy Committee held the repo rate steady at 4.65% on Monday, Governor Rundheersing Bheenick had advocated an interest rate rise in a statement on Tuesday.

He noted that a higher repo rate would boost domestic savings and also stop investors pulling out their money in a general retreat from emerging markets.

However, the Ministry of Finance and Economic Development took up a position is in direct conflict with the Governor’s, saying in a statement late on Friday that increasing the key repo rate would only serve to further increase liquidity in the island’s banking system.

Urging the bank to explore further options, the ministry said it would help “by working out an optimal solution that will include assisting the Bank of Mauritius to mop up, without however giving any blank cheque.”

The finance ministry suggested absorbing the extra money floating in the banking system by “front-loading of Government Borrowing Requirements”.

The central bank retaliated on Saturday, saying that there was question of a “blank cheque” and that it had often asked the finance ministry to remedy the excess liquidity that its actions had created.

The central bank went on to blame the government’s foreign borrowing for pumping too much money into the banking system, and also pointed fingers at the finance ministry for depositing its funds with commercial banks.

“Should the Bank attend to reduce the level of excess liquidity in the banking system on its own through open market operations, it will suffer from an operational loss and will eventually have to be recapitalised by Government,” the bank said in a statement.

Meanwhile, data from the finance ministry showed that between January and November, the government borrowed a total Rs 9.34 billion from external sources to cover part of its budget.

Caption: The Governor of the central bank (left) retaliated on Saturday, saying that there was question of a “blank cheque” and that it had often asked the finance ministry (right) to remedy the excess liquidity that its actions had created.

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