Wednesday, February 28, 2018

Mauritius maintains rate but raises inflation forecast

      The central bank of Mauritius left its benchmark repurchase rate at 3.50 percent, but raised its forecast for inflation this year to 4.0 percent from 3.5 percent forecast in November, noting the rise in inflation in recent months.
     The Bank of Mauritius (BOM), which last September cut its rate for the first time since July 2016, said the rise in inflation since the previous meeting of its monetary policy committee in November was mainly due to transitory supply-side shocks, with a surge in vegetables prices in January due to adverse weather following a rise in domestic petroleum prices in December 2017.
       Inflation in the Indian Ocean island of Mauritius rose to 6.2 percent in January from 4.2 percent in December and 3.6 percent in November.
       However, BOM added that core measures of inflation "remained subdued."
       Earlier in 2017 inflation accelerated due to higher the prices of alcohol, tobacco and diesel oil and hit a 5-year peak of 6.4 percent in June.
       The economy of Mauritius grew by 3.6 percent in the third quarter of last year, down from 4.2 percent in the second quarter and 3.7 percent in the third quarter of 2016, BOM said, adding growth was supported by higher investment activity and stable consumption spending.
      "The MPC expects that the economic recovery would be sustained in 2018," BOM said, adding the baseline projections for GDP growth this year is 4.0 percent, down from 4.2 percent earlier forecast.
       The Mauritian rupee, which tumbled in 2015, has been rising steadily since early 2017 but weakened this month.
       Today the rupee was trading at 33.85 to the U.S. dollar, marginally up from 33.9 at the start of the year and up 5.9 percent since the start of 2017.

      The Bank of Mauritius issued the following statement:

"The Monetary Policy Committee (MPC) of the Bank of Mauritius has decided to leave the Key Repo Rate (KRR) unchanged at 3.50 per cent per annum at its meeting today.
The MPC noted that global growth has strengthened. The International Monetary Fund, in its January 2018 World Economic Outlook Update, has revised global growth estimate to 3.9 per cent for 2018, from 3.7 per cent in its October estimate. It noted that economic recovery was becoming more balanced. Upside and downside risks to the global growth forecasts remained broadly balanced in the near-term. Global inflation has increased in 2017 but has remained contained despite higher energy prices.
Domestic inflation has risen since the last MPC meeting, largely due to transitory supply-side shocks. In particular, there was a surge in prices of fresh vegetables in January 2018, due to adverse weather conditions. In addition, there was an increase in domestic petroleum prices in December 2017. Headline inflation rose to 4.0 per cent in January 2018, while year-on-year inflation increased to 6.2 per cent. However, the core measures of inflation remained subdued. The Bank’s baseline projection for headline inflation is around 4.0 per cent in 2018 and 3.7 per cent in 2019.
The domestic economy grew by 3.6 per cent in 2017Q3, following a growth of 4.2 per cent in 2017Q2 and 3.7 per cent in 2016Q3. The performance of the domestic economy was supported by an expansion of investment activity and relatively stable final consumption expenditure. The MPC expects that the economic recovery would be sustained in 2018. The Bank’s baseline projection for real GDP growth is 4.0 per cent in 2018.
The MPC took note that since mid-December 2017 the Bank has been actively conducting open market operations to mop up the excess liquidity and address the disconnect between money market rates and the KRR. As a result, the overnight interbank rate rose from below 1.0 per cent to 3.05 per cent, and is within the corridor under the monetary policy framework. The Bank continues to pursue sterilized foreign exchange market intervention.
After considering the different economic scenarios and policy options, the MPC decided, by majority vote, to keep the KRR unchanged at 3.50 per cent.
The MPC will issue the Minutes of its meeting on Wednesday 14 March 2018."


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