BOM meets on interest rates on March 28

10 years, 7 months ago - March 24, 2011
REUTERS FORECAST: Five of nine analysts expect the bank to raise its benchmark lending rate by up to 50 basis points from 4.75 percent, while four see no change

Pressure is mounting on Mauritius' central bank to raise its benchmark lending rate amid rising inflation but a 2011 economic growth forecast of 4.2 percent, below pre-crisis levels, could dissuade it from such a move, analysts said.

In the run up to the meeting, central bank's Governor Rundheersing Bheenick underlined that the Bank of Mauritius' priority is on maintaining price stability, ahead of promoting economic growth.

The five analysts predicting a rate rise expected a hike of up to 50 basis points, with one seeing an outside chance of a 1 percent jump.

"We expect the Bank of Mauritius will raise its policy rate by 50 bps at its meeting ... and that it will keep policy tight for the remainder of the year," said Melissa Van Rensburg, an economist at NKC Independent Economists.

"Despite feeling the pressure from the private sector to keep interest rates lower for longer, we believe that rising consumer price inflation will prompt a turnaround in monetary policy," she said.

Bank of Mauritius shocked the market when it slashed its lending rate by 100 basis points in September, saying there was a risk of a significant economic slowdown amid an uncertain global outlook while inflation was benign.

As planned, it has left the rate unchanged for the last six months but in December the central bank said an accelerating inflation rate posed a risk to economic growth and could bring an end to the cycle of monetary easing.

Since then, the annual average rate of inflation has climbed to 3.6 percent from December's 2.9 percent, while the year-on-year rate sits at 6.8 percent and is projected to maintain an upward trend.

Bheenick said in February inflationary pressures were "building up everywhere" and warned Mauritius needed to be wary of second round shocks.

Analysts forecasting a hold on the lending rate said it was imported inflation that was driving up consumer prices on the Indian Ocean island.

While a rate rise might compromise economic growth, its impact on inflation would be small, said Chandan Jankee, economics professor at the University of Mauritius.

"The MPC will favour growth over inflation and will therefore decide to leave the rate unchanged for the time being," Jankee said.

Text by Reuters

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