By CentralBankNews.info
The central bank of Mauritius held its repo rate steady at 4.65 percent, but said members of its monetary policy committee were “divided on the need to rapidly normalize the Key Repo Rate to address the risks to inflation and the excess liquidity situation while enhancing savings in the economy.”
The Bank of Mauritius, which last cut is rate by 25 basis points in June 2013, said inflation rose to 4.0 percent in December from 3.1 percent in August and core inflation had also risen, “reflecting underlying inflationary pressures in the economy” with prices of locally produced goods and services having a higher impact on inflation that prices of imported goods and services.
The bank’s policy committee discussed alternative scenarios during ints meeting, with some members expecting inflationary pressures to remain subdued and economic recovery could be jeopardized by premature monetary policy tightening.
Other committee members had argued that domestic growth was firmly recovering while upside risks to inflation were rising and on the basis on unchanged rates, inflation could rise to 5 percent by the end of the first quarter of this year and end the year around 4.0 percent.
Ultimately, a majority of committee members voted to maintain the repo rate, but the bank said it would maintain “strong vigilance in monitoring economic and financial developments and stands ready to meet in between its regular meetings, if need arises.”
The economy of Mauritius has continued to hold up well and economic output is estimated to be near its potential, the bank said, adding that Gross Domestic Product growth was forecast to pick up to a range of 3.7-4.0 percent this year, an increase of 0.5-0.8 percentage points above the 2013 estimated growth of 3.2 percent.
sept Mauritius holds repo rate on contained inflation
The Bank of Mauritius, which cut its rate by 25 basis points in June, said other members on the committee argued that upside inflation risks were still present and considered it important to normalize the repo rate to address vulnerabilities in the banking sector from prolonged negative real interest rates and offer rates that would help change savings and consumption behaviour.
“The MPC maintains strong vigilance in monitoring economic and financial developments and stands ready to meet in between its regular meetings, if the need arises,” the bank said.
When the central bank cut its rate in June, the governor told Bloomberg that he had voted for an increase in the rate to help contain inflation.
Mauritius’ inflation rate fell to 3.1 percent in August from 3.6 percent in July. Since January it has fluctuated between 3.6 and 3.7 percent and the central bank’s staff projects inflation remaining in a range of 4.5-4.9 percent by December before rising to 4.9-5.5 percent by June 2014.
Economic activity in Mauritius continues to face headwinds from soft economic conditions in its main trading partners with the output gap projected to remain slightly negative, the bank said, taking note of the statistics’ office revising down its 2013 growth forecast to 3.2 percent from 3.3 percent.
The central bank’s own staff trimmed its forecasts 2013 growth to a range of 3.1-3.5 percent from a forecast of 3.2-3.7 percent in June.
The global economy had improved slightly since June, the bank said, though the outlook for the U.S. remains clouded by the fiscal deadlock and growth in China and India has slowed and looks unlikely to return to previous highs. Global inflation is broadly benign, below target in advanced economies while some emerging countries have seen higher inflation due to depreciating currencies.
