Mauritius maintains rate, sees sharper 2020 contraction

     The central bank of the Indian Ocean island of Mauritius left its benchmark interest rate steady but lowered its forecast of economic growth this year to a contraction of 13 percent versus its July forecast of a 12.5 percent contraction as its economy continues to suffer from the impact of the COVID-19 pandemic.

      The Bank of Mauritius (BOM) kept its key repo rate (KRR) at 1.85 percent after cutting it by a total of 150 basis points in March and April.

     Although the global economy is showing some signs of improvement, the pace of the recovery depends on containment of the pandemic and the domestic economy is still facing the disruptive effects of COVID-19 as cautious spending and economic uncertainty continue to impact both household spending and private investment.

     "The contraction in major trading partners' output would result in weaker demand for our exports," BOM said, noting its staff had revised down its projection for gross domestic product growth for 2020 to minus 13.0 percent from an earlier minus 12.5 percent.

     For 2021 GDP is seen growing about 7.5 percent, slightly up from an earlier forecast of 7 percent growth.

     In the first quarter of this year Mauritius' economy contracted by 2.0 percent year-on-year, the first contraction since 2005, with tourism hard hit. 

     Inflation was steady at 1.5 percent in August and July and BOM forecast inflation of around 2.5 percent in both 2020 and 2021.

     After falling in March, the Mauritian rupee has been relatively stable, trading at 39.9 to the U.S. dollar today, down 8.8 percent this year.

     

      

    The Bank of Mauritius issued the following statement:

"The Monetary Policy Committee (MPC) of the Bank of Mauritius (Bank) has unanimously decided to keep the Key Repo Rate (KRR) unchanged at 1.85 per cent per annum at its meeting today.

The global economy has been showing some signs of improvement, backed by support from monetary and fiscal authorities. Nonetheless, the pace of the global economic recovery is dependent on the containment of the COVID-19 pandemic. OECD’s latest growth outlook puts the global GDP contraction at 4.5 per cent in 2020, an upgrade from the 6.0 per cent contraction predicted in June 2020. Global inflationary pressures are projected to remain subdued in the near term.

The domestic economy is still facing the disruptive effects of the COVID-19 pandemic. Cautious spending patterns and economic uncertainty continue to impact both household consumption expenditure and private investment. The contraction in major trading partners’ output would result in weaker demand for our exports. Consequently, Bank staff has revised its projection for real GDP growth for 2020, from -12.5 per cent to -13.0 per cent. For 2021, real GDP is projected to grow at about 7.5 per cent.

Domestic inflation continues to remain low and stable, as demand-side and supply-side pressures remain at bay. In the absence of further exogenous shocks, Bank staff is projecting headline inflation at about 2.5 per cent in both 2020 and 2021.

Considering the international and domestic economic outlook, the MPC views that the current monetary policy stance of maintaining the KRR at 1.85 per cent per annum is appropriate.

The MPC will continue to monitor the economic situation closely and stands ready to meet in between its regular meetings, if the need arises.

The MPC will issue the Minutes of its meeting on Wednesday 7 October 2020."

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