Mauritius held its key repo rate unchanged at 4.65% in the latest Monetary Policy Committee meeting (MPC) held yesterday, April 28, 2014. It may be noted that Bank of Mauritius (BOM) Governor Rundheersing Bheenick has been arguing in favour of an increase in the key repo rate to spur savings and contain inflation.

In fact, there have been public disagreements between the central bank and the Finance Ministry, due to the five external members of the MPC from the ministry outvoting the three BOM members to hold the key repo rate steady at the last meeting held in February 2014.

The MPC noted in the statement issued for the latest meeting that even if the world economic situation appears to have improved since its last meeting in February 2014, growth remains slow and uneven.

The committee observed that healthy growth of economic activity in the United States and United Kingdom is expected, but a slower pace would prevail in the Eurozone. On the other hand, in emerging countries, growth perspectives areworsening and considerable inflation pressures are weakening their currencies.

Also, despite the fact that global oil prices fell down, there has been an increase in global food prices in the first quarter of the year, further fuelling inflation.

The MPC noted that despite a slowdown in economic growth in the fourth quarter of 2013, economic activity is anticipated to rise as recovery takes hold in main export markets.

The bank maintained its GDP growth forecast and stated that the economy may be expected to expand in a range of 3.7 to 4.0 per cent this year from 3.2 per cent last year.

The committee members noted that annual headline inflation in Mauritius increased to 4.5 per cent in March 2014 from 4.0 per cent in December 2013, representing mostly fluctuations in fresh vegetables prices.

The bank forecasts inflation in a range of 3.9 per cent to 4.1 per cent by June 2014 before increasing to a range of 3.9 per cent to 4.3 per cent by December 2014. The MPC considered the risks to the growth and inflation outlook over the policy relevant horizon and discussed alternative interest rate scenarios.

“A majority of members argued that domestic economic conditions were broadly unchanged from the previous MPC meeting. They considered it premature to tighten the current monetary policy stance given continued downside risks to the growth outlook and subdued inflationary pressures,” according to the statement.

Other members took an opposing stance and asked for interest rates to be raised, stating that it would help increase the savings rate in the economy and address increasing vulnerabilities in the financial system due to a prolonged period of low interest rates.

Moreover, members emphasized increased vigilance for the global markets, keeping in mind the risks of heightened market instability in the wake of the US Fed tapering.

The MPC concluded on the note that it remains vigilant when monitoring economic and financial developments and stands readyto meet in between regular meetings, if needed.

Last week, the International Monetary Fund said the Bank of Mauritius’ current monetary stance was “broadly appropriate” but a withdrawal of accommodation might be necessary if inflationary pressures intensify. They also suggested that Mauritius should adopt a formal inflation targeting framework and that fiscal policy should be tightened this year to meet debt ratio targets. The IMF forecast 3.7 percent GDP growth this year.

The detailed minutes of its meetings will be issued by the MPC on Monday May 12, 2014 but it is likely that Governor Bheenick shared the minority view as he has frequently called for higher rates to meet the bank’s year-end inflation target of 4.0 percent.

Image (Bank of Mauritius): It may be noted that Bank of Mauritius (BOM) Governor Rundheersing Bheenick has been arguing in favour of an increase in the key repo rate to spur savings and contain inflation.

More business news on AfricaMoney

Facebook Comments