The Monetary Policy Committee (MPC) of the Bank of Mauritius (BOM) announced yesterday that it is maintaining the Key Repo Rate (KRR) at 1.85% per annum.
The MPC has sent a strong message to both the business community as well as consumers. Policy-makers will continue to provide the necessary breathing space that socio-economic stakeholders need to recover from the pandemic fully.
KRR has never been so low. Records from the Bank of Mauritius that dates back to December 2006 show that Mauritius has historically maintained a KRR average of 5%. From 8.5% in December 2006, Mauritius brought its KRR to 4.75% in September 2010 to support businesses and relieve householders from the debt burden throughout the 2008 Financial Crisis. By keeping the KRR low, policy-makers also encourage local and international investors to invest in long-term projects with high added value and high capital retention rates.
Already, the economy is showing solid signs of recovery. The National Accounts released by Statistics Mauritius shows that total final consumption expenditure in real terms increased by 20.2% in the second quarter of 2021 compared to a contraction of 4.1% in the previous quarter. The final consumption expenditure of households grew by 30.1%, while that of the general government declined by 3.7%.
The second growth driver is construction as an investment (Gross fixed capital formation) increased by 123.2% compared to a contraction of 1.7% observed in the first quarter of 2021. The 123.2% increase resulted from increases in “Building and construction work” (320.3%) and “Machinery and equipment” (37.9%).
According to the Bank of Mauritius, “the domestic economy bounced back in 2021Q2 with a year-on-year growth of 19.3 percent. The economy will likely see positive growth as sentiment gradually improves with the ongoing vaccination campaign and the full reopening of borders”. The Bank maintains its previous projection of real GDP growth at about 5.5 percent for 2021.
Inflation rate of 3.8% expected in 2021
Meanwhile, the Bank of Mauritius is managing excess rupee liquidity in line with its monetary policy stance. The Bank has regularly intervened to address excessive exchange rate volatility and ensure an adequate supply of foreign exchange in the market.
Globally, inflation is still high but is expected to ease in most countries in 2022, the Bank of Mauritius noted. However, inflation in Mauritius has been contained despite the recent increase in prices, the cause of which has been attributed to a transitory supply shock related to rising freight costs and commodity prices. The Central Bank explained that “although there are still uncertainties about global price dynamics, these supply-side influences are expected to fade by 2022. The Central Bank expects Mauritius’ inflation rate, in the absence of further external shocks, to be 3.8 percent in 2021.
Here is the full press release from the BOM:
