Tuesday, June 18, 2013

Mauritius cuts repo rate 25 bps and trims growth forecast

    The central bank of Mauritius cut its repo rate by 25 basis points to 4.65 percent by a majority vote and revised downwards its 2013 growth forecast due to "lasting downside risks to the economic outlook" and generally softer conditions in the main trading partners.
    The Bank of Mauritius, which last cut its rate in March 2012, said the domestic economy continues to be vulnerable due to the subdued external environment and economic output has been below trend with slow export growth and a significant contraction in construction.
    The 2013 growth forecast was revised down to a range of 3.2-2.7 percent, down from a March forecast of 3.4-3.9 percent. In 2012 the economy grew by an estimated 3.3 percent.
    Inflation has remained broadly unchanged since the bank's March meeting, and in addition to excess capacity in the economy, a new CPI basket has introduced a downward substitution bias. However, there are upside risks to the inflation outlook from public sector wages and a possible spillover to private sector, the bank said in a statement from June 17.
    Inflation this year is forecast at 5.3-5.8 percent, based on no changes in policy, equivalent to headline inflation of 4.1-4.3 percent, the central bank said.
    In March the inflation rate rose to 3.7 percent from 3.6 percent the previous month and the central bank said its inflation expectations survey in May put the mean headline inflation rate at 4.3 percent in December this year.
    The central bank said its monetary policy committee was divided on the risks to growth and inflation, with some members arguing for proactive action to tackle medium-term inflation and others saying the growth outlook had deteriorated in light of developments in the main trading partners.
    Rundheersing Bheenick told Bloomberg today that he voted for a 25 basis point increase in the policy rate for the second time this year to help contain inflation.



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