Mauritius | Finances

July 03, 2013

Ali Mansoor: "Repo Rate Increase Would Have Been Suicidal"

The Financial Secretary Ali Mansoor did not fail to tap the fingers of the monetary policy committee, even going so far as to say that the committee "has no credibility in the market." Delays in road works, he also said, contributed to lower growth of about 1%.

"The rates set by the Monetary Policy Committee are not compatible with market conditions. "Those are the words of Ali Mansoor at the last meeting of the Monetary Policy Committee, June 17. These statements were made public by the Bank of Mauritius on Tuesday. "The Monetary Policy Committee has no credibility in the market as it has consistently set interest rate that the market does not follow," said the financial secretary.

The Bank of Mauritius, said Ali Mansoor, was "too concerned" about inflation. "And part of the problem is that we blindly follow the models. In turbulent times, the use of models may not be adequate due to structural breaks, "he says.

Especially, he says, that all economic indicators point to a rate cut as "the recovery of the global economy has been slower than expected, with the deepening recession in the euro zone." Besides, he says, growth is lower than the rate at which the Ministry of Finance is expected, a few months ago. "It was expected that the program would have increased road congestion growth rate of 1%, but there were significant delays, causing a decline in the growth of the order of 0.5 to 1%," says there.

On the other hand, argues Ali Mansoor, major public and private investment projects in terms came to an end. "Government programs to stimulate investment, have been slow to take off. The specter of unemployment is alarming. Many companies are on the verge of closing their doors and it is more visible in the tourism sector, "he argues.

However, says the Financial Secretary, the fiscal space is "much more limited because the country has objectives in terms of debt to comply." "Monetary policy has greater leeway to support fiscal policy as inflation is under control," suggests Ali Mansoor. He added: "The Monetary Policy Committee must carefully consider its responsibilities, not only in history, but right now. While a lower repo rate will have no significant macroeconomic effects, and certainly not in the short term, it could have major microeconomic effects especially since the exchange rate of the rupee is overvalued, "argues there.

For Ali Mansoor, increased Repo rate was "suicidal." He therefore appealed to the members to make a "wise decision" to reduce the rate or leave the repo rate unchanged. This would, according to him, the second best option. As for Ali Mansoor, he spoke to a decrease of 50 basis points.

"It would have sent a strong signal to the market that monetary policy and fiscal policy were now well coordinated and that the government was determined to do everything possible to fight against unemployment," he argued. But in the end, the committee decided to reduce the repo rate by 25 basis points.

 

 

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