Mauritian Central Bank to ‘Normalize’ Rates

10 years, 4 months ago - May 03, 2011
The Bank of Mauritius will probably raise interest rates further this year

The Bank of Mauritius will probably raise interest rates further this year after the inflation rate almost tripled in six months, Governor Rundheersing Bheenick said.

“The Monetary Policy Committee was clear that we must normalize rates” when it raised borrowing costs in March, Bheenick said in an interview on April 30 in Port Louis, the capital. “We will continue the process.”

The central bank increased the key rate by half a percentage point to 5.25 percent on March 28, six months after slashing it by one point as the European debt crisis threatened to undermine demand for exports. The inflation rate rose to 6.8 percent in February from 2.5 percent in September, before reaching 7.2 percent in March, a 28-month high.

“Inflationary pressure is not getting out of hand,” said Bheenick, who has been central bank governor for four years.

The Treasury reduced taxes on gasoline and diesel as of March 30 to ease pressure on inflation, while the Ministry of Commerce and importers agreed upon a basket of foodstuff to be sold at reduced prices.

“Expectations of inflation will be perhaps more subdued in the light of our fairly strong action,” Bheenick said. “We are trying everything we can to contain it below double-digit,” with the end-of-year target at a “little above 5 to 6 percent.”

Rupee Strength

A 12.3 percent rally in the rupee against the dollar this year has limited the pick-up in inflation, Bheenick said.

“The rupee’s relative stability has been one positive development in terms of domestic inflation,” he said. “The element of stability is totally unprecedented.”

Higher interest rates won’t crimp growth, which will probably accelerate to 4.6 percent this year from 4.4 percent in 2010, Bheenick said on March 29.

As of April 8, the central bank limited commercial bank holdings in Treasury bills and government bonds to 20 percent of their lending, decreasing to 15 percent as of July 1. Following discussions with the Mauritius Bankers’ Association on April 27, the reduction in July was limited to 18 percent, Bheenick said.

“The direction is the same, albeit at a reduced pace,” he said. The limits are “required to add depth to our financial market and we see it as a major step forward. Our secondary market basically does not exist.”

Discussions are ongoing with the Stock Exchange of Mauritius and the Financial Services Commission for reducing brokerage and intermediation fees, he said.

--Editors: Philip Sanders, Jennifer Freedman

 

Text by Bloomberg

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