Mauritius maintains rate, says inflation still acceptable

      The central bank of the Indian Ocean island of Mauritius left its key interest rate unchanged, saying the current monetary policy stance is "appropriate and supportive of economic recovery," and while it once again raised its forecast for inflation, it remains "within an acceptable range."
      The Bank of Mauritius (BoM) kept it key repo rate (KRR) at 1.85 percent, unchanged since April 2020   when it was lowered for the second month in a row to support economic activity during the collapse in global tourism after the outbreak of the COVID-19 pandemic.
      Last year's rate cuts, which totaled 1.75 percentage points, extended the central bank's decade-long easing of its monetary policy stance with interest rates lowered 9 times and by a total of 3.65 percentage points from December 2011 to April 2020.
      BoM last rate rise occurred in June 2011.

      After remaining around 1.0 percent in the first four months of the year, inflation in Mauritius began to pick up in May and rose to 6.4 percent in November from 5.8 percent in October.

     BoM projected headline inflation of about 4.0 percent, up from its October forecast of 3.8 percent and the August forecast of 3.5 percent.

     "On the domestic front, the full re-opening of borders and the on-going vaccination campaign, including deployment of booster doses, are improving confidence and strengthening economic recovery," the bank's monetary policy committee said, adding credit growth to households accelerated in the third quarter and the solvency and liquidity position of banks remain strong.

      However, BoM also said the onset of the Omicron variant of the coronavirus has brought some uncertainty to the tourism sector and lowered its outlook for economic growth this year to around 5.0 percent from the previous forecast of around 5.5 percent.

      Mauritius' gross domestic product grew an annual 18.8 percent in the second quarter of this year, the fastest pace of growth since 2011, after 5 consecutive quarters of contraction.

     The Bank of Mauritius issued the following statement:

     

 

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

The global economy continues to recover. The Organisation for Economic Co-operation and Development (OECD) has, in its December 2021 Economic Outlook Report, forecast global growth at 5.6 per cent for 2021 and 4.5 per cent for 2022, assuming that current travel restrictions are completely withdrawn by end 2022, and that monetary policy remains accommodative in advanced economies.

On the domestic front, the full re-opening of borders and the on-going vaccination campaign, including deployment of booster doses, are improving confidence and strengthening economic recovery. Credit growth to households and corporates has been accelerating in the third quarter of the year. The solvency and liquidity positions of banks remain strong. However, the onset of the Omicron variant has brought some uncertainty to the tourism sector. The Bank has revised its growth rate projection for 2021 to around 5.0 per cent.

The Bank continues to manage excess rupee liquidity in line with its monetary policy stance. Short-term yields have remained within the interest rate corridor. FX interventions have been conducted on a regular basis to address undue exchange rate volatility and to ensure adequate supply of foreign exchange to the market.

Supply-based disruptions and resurgent demand for commodities continue to impact on global inflation.  Domestic inflation remains influenced by supply shocks stemming from outside, in particular higher freight costs, as well as higher food and other commodity prices. These supply-side influences are expected to subside in the medium term. In the absence of any further exogenous shocks, the Bank is projecting headline inflation at about 4.0 per cent for 2021, which remains within an acceptable range as per historical data.

The MPC has weighed the risks to the growth and inflation outlook and considers that the current monetary policy stance is appropriate and supportive of economic recovery. Accordingly, the MPC has decided to maintain the KRR at 1.85 per cent per annum.

The MPC will issue the Minutes of its meeting on Wednesday 29 December 2021.

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

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