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Central Bank of Mauritius

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Central Bank of Mauritius

Key rate maintained at 4.5%

The Monetary Policy Committee (MPC) of the Central Bank of Mauritius has taken financial analysts and economic experts by surprise with its recent decision to maintain the key rate at 4.5 %. This unexpected move signals a strategic decision by the committee to allow the impacts of the preceding four key rate hikes to unfold and influence the economy.

The rationale behind this decision stems from a clear intention to let the mechanisms of monetary policy transmission operate and support the current economic recovery. Harvesh Seegolam, Governor of the Bank of Mauritius, emphasized this approach during a recent press conference.

Another crucial factor influencing the MPC’s decision is the downward trend in overall inflation. In August, inflation stood at 9.6 %, down from 11.1 % recorded in the previous March. The decline marks the sixth consecutive decrease, and according to estimates, this trend is expected to persist throughout the second half of 2023, eventually reaching 7 % by year-end.

Monetary policy implemented the previous year played a pivotal role in controlling core inflation. The strong economic stability paved the way for a thriving recovery, which took off in the first quarter of 2023. This remarkable resurgence was chiefly propelled by vital industries such as tourism, financial services, and construction.

The tourism sector, in particular, remains strong and is expected to continue driving the island’s economic activity. Tourist receipts are projected to reach approximately 84 billion MUR in 2023, a significant increase from the previous year’s 64.8 billion MUR. This growth is fueled by a « strong appetite for travel », with an expected arrival of 1.3 million tourists on the island throughout the year.

However, concerns persist regarding the foreign exchange (Forex) market and the ongoing shortage of foreign currencies. The situation has improved, with the rupee exchange rate now in line with the market, as noted by the Governor of the Bank of Mauritius. He also warned that sanctions would be applied to banks engaging in Forex market speculation to manipulate exchange rates for personal gain.

The Bank of Mauritius has reduced its interventions in the Forex market compared to the previous year, indicating that the market is now generating more foreign currencies. Up until September 5, the Forex market had recorded a turnover of 8.2 billion USD. This trend could have a significant impact on the island’s long-term financial stability.

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