Mauritius’s rupee depreciated to a one-week low as concern that Europe’s debt crisis will worsen

The Indian Ocean island nation’s currency retreated as much as 0.9 percent to 28.55 rupees and traded 0.5 percent down at 28.45, the weakest intraday level since July 5, by 11:13 a.m. in Port Louis. Mauritius’s stocks index retreated the most in almost four months, losing 0.6 percent to 2,077.61.

All emerging-market currencies tracked by Bloomberg weakened against the dollar as European finance ministers revived the prospect of bond buybacks to ease Greece’s plight and declined to rule out a temporary default, struggling to contain the debt crisis as investors pounded Italy, the continent’s third-largest economy.

“Domestic holders of euros are selling to minimize exchange-rate losses, driven by the mounting debt crisis,” Nitish Benimadhu, a foreign-exchange and fund manager at Anglo Mauritius Financial Services Ltd., said by phone from Port Louis today. In turn, exporters and local companies “can’t hold rupees” as inflation is higher than the nation’s benchmark interest rate, resulting in a negative real return, he said.

Mauritius annual inflation rate fell to a five-month low of 6.6 percent in June, while the central bank raised its benchmark repo rate to 5.5 percent on June 13 to rein in price growth that reached the strongest level in more than two years in March.

About 67 percent of Mauritius’s import bills are dollar- denominated, Benimadhu said.

Investors are “accumulating the dollar, which is available at a discount price today” compared to a “normal level” of 30 rupees, Benimadhu said.

The country, with a population of 1.3 million people, is a net importer of food and fuels. Europe, which accounts for two thirds of visitors, is also the main buyer of Mauritian exports.