The central bank of the Republic of Mauritius cut its benchmark repo rate by 25 basis points to 4.40 percent as the risk to domestic growth remains to the downside while inflation is seen moderate.
It is the first rate cut by the Monetary Policy Committee of the Bank of Mauritius since June 2013 and the MPC was unanimous in its decision on Nov. 9.
The headline inflation rate in Mauritius, an island nation in the Indian Ocean off the east coast of Africa, dropped to 1.5 percent in October from 2.0 percent in September and the central bank said it expects inflation to "remain subdued" in light of low commodity prices and low inflation in trading partners.
The central bank forecasts headline inflation of around 1.6 percent this year and 3.0 percent in 2016, with a rate of 3.3 percent by the end of next year.
"However, the MPC underlined that wage developments in excess of inflation and productivity gains pose upside risks to inflation," it added.
Gross Domestic Product in Mauritius expanded by 1.6 percent in the second quarter of this year form the first quarter for annual growth of 3.0 percent, down from 3.5 percent in the first.
The central bank added that it had revised down its growth forecast for this year to 3.4 percent and Statistics Mauritius was forecasting 3.6 percent compared with 2014's 3.5 percent.
"The negative output gap is projected to persist during 2016," the central bank said, adding that private sector investment activity has yet to pick up.
The Bank of Mauritius issued the following statement:
"The Monetary Policy Committee (MPC) of the Bank of Mauritius (Bank) has unanimously
decided to cut the Key Repo Rate by 25 basis points to 4.40 per cent per annum at its
The MPC noted that global economic recovery was weaker than expected. The growth
outlook remained uneven across countries and regions. The IMF reduced its global growth
projections for 2015 and 2016 to 3.1 per cent and 3.6 per cent, respectively. The recovery in
both advanced and emerging market economies is expected to strengthen moderately in
2016. Whilst there have been signs of improved growth in some advanced economies,
downside risks to the global growth outlook persist particularly in many emerging market
economies. The outlook for global inflation remains benign amid subdued global economic
activity and low global commodity prices. Several advanced and emerging economies have
lately reduced their key policy rates.
The MPC noted that Statistics Mauritius again revised down the growth of the economy to
3.6 per cent in 2015 compared to 3.5 per cent in 2014. The Bank has also revised down its
growth forecast for the economy to 3.4 per cent. The negative output gap is projected to
persist during 2016. The MPC welcomed the decision of government to accelerate project
implementation to address the declining investment trend.
The MPC also took note of excess liquidity conditions in the banking system. The Bank has
sterilised a total amount of Rs29 billion since the beginning of the year.
Inflation moderated further since the last MPC meeting, with headline inflation falling to a
low of 1.2 per cent in September 2015. Year-on-year inflation rose to 2.0 per cent due to
volatilities in the prices of vegetables. The Bank projects headline inflation at around 1.6 per
cent in 2015 and 3.0 per cent in 2016. Year-on-year inflation is forecast at around 2.6 per
cent at end-2015 and 3.3 per cent at end-2016. The MPC is of the view that the rate of
inflation is likely to remain subdued in the context of low commodity prices and low
inflation in major trading partner countries. However, the MPC underlined that wage
developments in excess of inflation and productivity gains pose upside risks to inflation.
The MPC weighed the risks to the growth and inflation outlook over the relevant policy
horizon. It viewed that the inflation outlook was relatively moderate while risks to the
domestic growth outlook remained tilted to the downside. Private sector investment has yet
to pick up. The MPC decided to reduce the Key Repo Rate to support domestic economic
The MPC will issue the Minutes of its meeting at 13:00 hours on Monday 23 November