Mauritius holds rate, economy seen shrinking 12.5%

July 8, 2020

By CentralBankNews.info

The central bank of Mauritius left its benchmark interest rate steady, saying the two rate cuts earlier this year are still working their way through the economy, which is expected to shrink 12.5 percent this year, and the current monetary policy stance is deemed appropriate.
The Bank of Mauritius (BOM) left its key repo rate (KRR) at 1.85 percent after cutting it by a total of 150 basis points following cuts in March and April.
The Indian Ocean island has been hit hard by the plunge in global tourism since the outbreak of the Covid-19 pandemic, along with its export-reliant manufacturing industry, and the central bank expects household consumption and private investment to remain subdued this year.
“The global economic landscape remains fraught with uncertainty as countries continue to experience the adverse affects of the COVID-19 pandemic,” BOM said.
The central bank forecast the island’s economy will contract by 12.5 percent this year and then rebound and expand  some 7.0 percent in 2021.
In late May the bank’s governor, Harvesh Seegolam, who took over in late February, said he expected the economy to contract between 7.5 percent and 15 percent this year, revising down the bank’s March forecast for growth of 2.6 percent to 2.8 percent.
In the first quarter of this year, Mauritius’ gross domestic product contracted 2.0 percent year-on-year and 3.6 percent quarter-on-quarter.
Inflation in June eased to 1.7 percent from 2.8 percent in May and BOM forecast inflation of around 2.5 percent this year and about 2.0 percent in 2021, barring exogenous shocks.
After falling in March, the Mauritian rupee has been relatively stable since mid-April and was trading around 40 to the U.S. dollar today, down 9 percent this year.

The Bank of Mauritius issued the following statement:

 

“The Monetary Policy Committee (MPC) of the Bank of Mauritius (Bank) met today and unanimously decided to keep the Key Repo Rate (KRR) unchanged at 1.85 per cent per annum.
The global economic landscape remains fraught with uncertainty as countries continue to experience the adverse effects of the COVID-19 pandemic. The unprecedented shock to the global economy has led several multilateral organisations (e.g. IMF, World Bank and the OECD) to revise down their initial growth projections for 2020. They are projecting that the world economy could contract between 4.9 per cent and 7.6 per cent in 2020. Global inflationary pressures are expected to remain contained.
The Mauritian economy, in particular key sectors such as tourism and manufacturing, is already being buffeted by the pandemic. Moreover, household consumption and private investment are expected to remain subdued in 2020.
The MPC discussed the implications of the pandemic on the domestic economy and the previous cumulative 150 basis points cut in the KRR. Members viewed that the cuts are still working through the economy and that the current monetary policy stance is deemed appropriate.
Given the risks facing the domestic economy, the Bank is projecting real GDP to contract by 12.5 per cent in 2020. However, real GDP growth is projected at about 7.0 per cent in 2021.
Domestic inflation has remained low and stable. Barring exogenous shocks, the Bank is expecting headline inflation at about 2.5 per cent in 2020 and at about 2.0 per cent in 2021.
The MPC stands ready to meet in between its regular meetings, if the need arises.
The MPC will issue the Minutes of its meeting on Wednesday 22 July 2020.”

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