Africa-Press – Mauritius. After slashing the benchmark interest rate to a record low in 2020, Mauritius’s central bank now signals that higher borrowing costs will be the new normal.
The bank focused on supporting the economy during the pandemic, but shifted to tightening monetary policy this year by increasing the benchmark repo rate by 40 basis points to 2.25% over two meetings.
The quantum of increases will be driven by domestic realities rather than mirroring the global trend, Bank of Mauritius Harvesh Seegolam said in an interview on Wednesday.
“We will be less and less accommodative as the economy recovers,” he said.
“We are already into a journey of normalization.
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After an economic expansion of 3.6% last year, the Indian Ocean island economy is forecast to grow by 7.2% in 2022 on expectations of one million tourists, reviving a key source of foreign currency.
Due to Covid-19, the economy contracted by almost 15% in 2020. “Most of our support measures and moratoriums ended in June, and we must take this into consideration too so as not to create financial instability,” Seegolam said.
“We shall not be governed blindly by the fact that other countries are hiking their rates. We are, however, following very closely interest rates differentials as well. ”
External price fluctuations account for 70% of inflation in Mauritius, a net buyer of food, fuel and industrial equipment. In May, imports rose 43% year-on-year to 24.08 billion rupees ($534 million).
The trade gap climbed 52% to 15.92 billion rupees. “We’re still doing well in managing the current inflation level.
By historical standards, we are not that bad,” Seegolam said. In June, the Bank of Mauritius forecast the annual average inflation will reach 8.6% by the end of December.
It now expects the pace of price growth to peak around 9.8% this year and subside thereafter. The normalization process will coincide with the rolling out of a new policy framework, he said.
“What the new monetary policy framework will be bringing to the table is anchoring inflation expectations for the medium- to long-term,” Seegolam said.
“We are considering a move from the current key repo rate to a new policy rate.”
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