The central bank of Mauritius kept its key repo rate at 4.65 percent and said it expects to maintain "this monetary policy stance up to the end of this year on the assumption that headline inflation will stay at or below 4 percent and y-o-y inflation at or below 3.5 percent, leaving aside unexpected supply shocks."
The Bank of Mauritius, which last cut its rate by 25 basis points in June 2013, also said its Monetary Policy Committee had discussed a normalization of interest rates with the majority view that this process needed to be started though there was some disagreement on the pace and timing.
Some members of the MPC took the view that the repo rate should be raised by at least 25 basis points at the first meeting of 2015 following the budget, an approach the bank said was expected to reduce uncertainty among economic operators and provide them guidance.
The economy of Mauritius slowed in the first quarter of 2014 to the "worst first quarter performance of the last 5 years" but is projected to improve in the second half of the year in line with improving economic conditions in its trading partners, the bank said.
However, downside risks to the outlook for growth persist and the MPC said it was "concerned about the breakdown of the monetary policy transmission mechanism," adding that central bank staff revised downwards the 2014 growth forecast to 3.4 to 3.6 percent, down from April forecast of 3.7 to 4.0 percent. In 2013 the economy grew 3.2 percent.
Mauritius' economy expanded by an annual 2.8 percent in the first quarter of 2014, according to press reports while consumer price inflation eased to 3.3 percent in June from 3.4 percent the previous month, the fourth consecutive month of declining inflation.
"Against a background of subdued global and domestic inflationary pressures, the MPC unanimously decided to leave the KKR unchanged," the bank said.
Mauritius' central bank has been in the news recently due to a public row with the finance ministry over the direction of interest rates and recent policy decisions have been characterized by disagreement within the MPC over rates with the governor, Rundheersing Bheenick, calling for higher rates due to concern over rising debt.
But at the end of June, the island's prime minister had said the central bank and the finance ministry had agreed to set an inflation target and coordinate other monetary policy issues, signaling that the row could be over.