Monday, October 27, 2014

Mauritius maintains rates, forecasts inflation of 3.0%

    The central bank of the Republic of Mauritius kept its key repo rate steady at 4.65 percent as the outlook for the economy was largely unchanged from July while inflation has declined and the bank's staff forecast inflation of about 3.0 percent in December.
    The Bank of Mauritius, which last cut its rate by 25 basis points in June 2013, said the domestic economy rebounded in the second quarter and the underlying growth momentum is projected to remain positive in the second half of this year.
    However, the bank said it still remains concerned about investment, productivity, competitiveness and the current account deficit.
    Bank staff maintained their 2014 growth forecast from July for the economy to grow by 3.4 to 3.6 percent. In July the bank had downgraded it growth forecast. Mauritius' Gross Domestic Product expanded by 2.4 percent in the second quarter from the first for annual growth of 4.6 percent, up from 2.7 percent in the first quarter.
    In 2013 Mauritius' economy expanded by 3.2 percent.
    The central bank's monetary policy committee has been divided over the need to raise interest rates for many months and in July the governor, Rundheersing Bheenick, underlined that rates would be expected to be raised following the 2015 budget.
    In today's meeting, some of the MPC's members renewed their discussions about normalizing interest rates to diminish the risk to financial stability and improve the low domestic savings rate, but "agreed that the timing of such an approach would depend on future price and real sector developments."
    The Bank of Mauritius, located in the Indian Ocean, east of Madagascar, issued the following statement:


"The Monetary Policy Committee (MPC) of the Bank of Mauritius has unanimously decided to keep the Key Repo Rate (KRR) unchanged at 4.65 per cent per annum at its meeting today.
The MPC noted that the global economy, as projected in the IMF’s October 2014 World Economic Outlook, would recover from 3.3 per cent in 2014 to 3.8 per cent in 2015 but growth would remain uneven across various countries and regions. Growth is projected to remain strong in the US and UK while in the Eurozone, the recovery is expected to be weak. Economic activity is projected to strengthen in several emerging market economies. The global inflation environment is projected to remain benign amidst declining international oil and food prices.
The domestic economy rebounded in 2014Q2, with a pick-up in growth in the main sectors of the economy. The underlying growth momentum is projected to remain positive during the second semester of the year. Staff maintained the growth forecast for 2014 in a range of 3.4 to 3.6 per cent. Concurrently, y-o-y inflation has declined, from 3.3 per cent in June 2014 to 2.9 per cent in September 2014, mainly attributed to subsiding food and transport inflation. Bank staff forecasted y-o-y inflation at about 3.0 per cent for December 2014.
The MPC weighed the risks to the growth and inflation outlook over the policy relevant horizon. The MPC noted that the economy showed resilience during 2014H1, in particular due to a bounce back to 4.6 per cent GDP growth in 2014Q2, and domestic economic conditions were broadly unchanged from the previous MPC meeting. Investment, productivity, competitiveness and the current account deficit remain matters of concern. Some members renewed discussions on interest rate normalisation to mitigate risks to financial stability and to address the issue of low domestic savings rate, but agreed that the timing of such an approach would depend on future price and real sector developments.
The MPC continues to monitor economic and financial developments and stands ready to meet in between its regular meetings, if the need arises.
The MPC will issue the Minutes of its meeting at 13:00 hours on Monday 10 November 2014. "


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