Wednesday, November 29, 2017

Mauritius maintains rate as inflation forecast lowered

        The central bank of the Indian Ocean island of Mauritius left its key repurchase rate steady at 3.50 percent to continue supporting economic growth but added it would also "exercise vigilance should there be a resurgence of inflationary pressures in the economy."
        The Bank of Mauritius (BOM), which in September cut its repo rate for the first time since July 2016, added that its staff was now projecting headline inflation this year of 3.6 percent and around 3.5 percent in 2018, down from the September forecast of 4.0 percent and 3.8 percent, respectively.
         Inflation in Mauritius accelerated earlier this year from an increase in the prices of alcohol, tobacco and diesel oil and hit a 5-year peak of 6.4 percent in June.
         But since then, inflation has been decelerating as the transitory shock dissipates and was was steady at 3.5 percent in October and September.
         When BOM cut its rate by 50 basis points in September, the bank also said it did not expect inflationary pressures to intensify in the foreseeable future based on stable core inflation. Core inflation eased to 2.1 percent in September from 2.7 percent in August.
        Economic growth in Mauritius picked up speed in the second quarter of this year as investment spending rose and growth momentum is expected to be maintained on accommodative monetary policy, upbeat business confidence and the implementation of major public and private projects.
        Gross Domestic Product expanded by 4.1 percent in the second quarter, up from 3.4 percent in the first quarter, and bank staff maintained its forecast of real GDP growth this year of 3.8 percent and 4.2 percent in 2018.
        In September bank staff lowered its 2017 growth forecast to 3.6 - 3.8 percent from 3.8 - 4.0 percent.
        As in September, BOM's monetary policy committee was unanimous in its policy decision. At today's its meeting there were lengthy discussions of the implication of a minimum wage and a negative income tax, which was seen as a major stride in reforming the labour market.
        The Mauritian rupee, which tumbled in 2015, has been rising this year despite a period of weakening in September and October
       Today the rupee was trading at 33.7 to the U.S. dollar, up 6.2 percent this year.

         The Bank of Mauritius issued the following statement:

"The Monetary Policy Committee (MPC) of the Bank of Mauritius has unanimously decided to maintain the Key Repo Rate at 3.50 per cent per annum at its meeting today.
The MPC noted that global economic activity has continued to strengthen in the second half of 2017 amid improved growth performance of some major economies, including Japan, China, and the Euro area as well as major commodity-exporting countries. The IMF, in its October 2017 Report on World Economic Outlook, has upgraded slightly its global growth forecasts to 3.6 per cent for 2017 and 3.7 per cent for 2018.  Inflation has gained some traction globally in the second half of 2017 due to the pick-up in energy prices. Nonetheless, global inflation would remain moderate. Major central banks, with the exception of the Bank of the England, kept their policy rates unchanged but were moving prudently towards reducing their monetary stimulus packages in line with global economic recovery.
Headline inflation in Mauritius rose from 2.7 per cent in July 2017 to 3.4 per cent in October 2017. In contrast, year-on-year inflation decelerated from 5.3 per cent in July 2017 to 3.5 per cent in October 2017.  Bank staff projects headline inflation at 3.6 per cent in 2017 and around 3.5 per cent in 2018, barring major shocks.
The domestic economy recorded stronger growth of 4.1 per cent in 2017Q2 compared to 3.4 per cent and 2.6 per cent, respectively, in 2017Q1 and 2016Q2. Investment spending increased significantly while export of goods continued to contract. Real GDP growth momentum is expected to be sustained on the back of accommodative monetary conditions, upbeat business confidence, and implementation of major public and private investment projects. Bank staff maintained forecasts of real GDP growth at market prices at 3.8 per cent in 2017 and 4.2 per cent in 2018, subject to the effective implementation of infrastructural projects.  
The MPC members discussed lengthily on the implications of the introduction of the minimum wage policy and negative income tax in Mauritius. Members recognized that these initiatives are a major stride towards reforming the labour market.
The MPC decided to maintain the Key Repo Rate at 3.50 per cent with a view to continuing to support economic growth. The Committee will continue to exercise vigilance should there be a resurgence of inflationary pressures in the economy.
The MPC will issue the Minutes of its meeting on Wednesday 13 December 2017."


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