Africa-Press – Seychelles. The Board of the Central Bank of Seychelles (CBS) has decided to maintain the Monetary Policy Rate (MPR) at 2.0 percent for the second quarter of 2023.
It was during a press conference yesterday morning that Governor Caroline Abel announced the Board’s decision to maintain an accommodative stance following its Monetary Policy Meeting held on March 27, 2023.
As such, the Monetary Policy Rate (MPR) remains at 2.0 percent, and the interest rates on the Standing Deposit Facility (SDF) and Standing Credit Facility (SCF) will be kept at 0.5 percent and 3.5 percent, respectively. The Minimum Reserve Requirement (MRR) remains unchanged at 13 per cent of applicable deposit liabilities.
On account of the uncertainties and both external and domestic developments, Governor Abel noted that CBS remains vigilant and stands ready to adjust its policies if necessary.
As with other central banks, the institution is primarily concerned with developments such as inflation. Despite the fact that tight monetary conditions resulting from interest rate hikes implemented in 2022 have led to a softening of foreign inflationary pressures going into 2023, the rate of inflation is expected to remain above the respective targets of key central banks such as the Federal Reserve, European Central Bank and the Bank of England. Thus, further tightening of global monetary conditions is anticipated.
Global growth projection was revised upwards at the beginning of 2023 when compared to the forecast of the last quarter of 2022, although it remains below the historical average for the 2000 to 2019 period. This was on account of the higher-than-expected expansion in output observed in the United States, Eurozone and United Kingdom towards the end of 2022.
Nevertheless, this outlook is subject to several downside risks, such as the further tightening of global monetary conditions to tame inflation, potential increases in international food prices, the escalation of the conflict in Ukraine and the emergence of the banking turmoil internationally.
International fuel prices are forecasted to be lower in 2023 as compared to 2022, on account of the subdued global economic outlook.
As for international food prices, it is expected to remain elevated due to tight global supplies and uncertainty surrounding the renewal of the Black Sea Grain Initiative, whereby the latter allows for the exportation of grain and other food items from three Ukrainian ports.
These developments could potentially impact economic growth in different economies around the world.
On the domestic front, Seychelles must keep a close eye on the situation, especially in the Eurozone, the primary source market for the domestic tourism industry, Governor Abel noted.
Despite the economic challenges in Europe, the growth in visitor arrivals was sustained by the positive performance of the traditional western European markets as well as from other regions.
Positive performance was recorded in the tourism industry, which contributed towards a sustained inflow of foreign exchange during the last quarter of 2022. Visitor arrivals grew by 7 percent, with revenues at €221 million, representing a 4.1 percent increase from the third quarter of 2022. This was also a 3.1 percent increase from the same period in 2021. In turn, this led to continued stability of the domestic currency which contributed to the moderation in inflation observed during the year thus far.
“In 2023, for the first three months, the performance of the tourism industry continues to remain positive. We have observed an increase of around 20 percent and revenues for the first two months, of around €166 million. This is a 9.5 percent increase from the same period in 2022,” Governor Abel stated.
A total of $78 was supplied to the market in January, and demand was at $79 million, while in February $72 million was supplied to the system, and demand was at $65 million. Up until March 24, $68 million was supplied, while demand has so far stood at $64 million.
“This means that from the beginning of the year up until March 24, $218 million has been supplied, representing a 17 percent increase from the same time period last year. In terms of demand, $208 million, representing a 19 percent increase from the same time in 2022,” Governor Abel added.
As the year progresses, the potential slowdown in economic activity, particularly in Europe, may negatively affect the global demand for travel. As such, this could adversely impact the local tourism industry and worsen the domestic economic outlook.
Particularly, the performance of the tourism sector may be adversely impacted if global travel sentiments become more subdued relative to 2022.
As at March, however, sustained inflows in foreign exchange revenues have led to the appreciation of the Seychelles Rupee against major currencies other than the Euro. Both purchases and sales of foreign currency were higher relative to 2022, on account of the increase in domestic economic activity.
As at March 27, the rate of a $ was at R13.64 while a Euro was at R14.59.
Nonetheless, the exchange rate outlook for 2023 will depend on several demand and supply factors. On the demand side, the expected increase in disposable income as well as elevated international food prices, may lead to a weaker Seychelles rupee. As for the supply of foreign exchange, it may be higher if the global demand for travel is sustained, which would positively affect the performance of the domestic tourism sector.
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