Africa-Press – Seychelles. Due to a worsened outlook for global economic activity, this reflects heightened uncertainty in the global economy,” the Governor of the Central Bank of Seychelles (CBS), Caroline Abel, said in her latest monthly press conference held on Tuesday at ICCS.
Governor Abel also explained that however, the ongoing conflict between Russia and Ukraine is expected to lead to a slowdown in global economic activity, implying an uncertain recovery for the domestic economy.
“Specifically, external factors such as higher commodity and fuel prices, supply chain and shipping constraints, as well as elevated global inflation and tighter financial conditions, are expected to influence developments in the domestic economy. Notwithstanding the heightened domestic inflationary pressures, CBS considers it important to continue supporting the economy as it continues to recover from the abating effects of the pandemic. Consistent with the unchanged MPR, the interest rate on the Standing Deposit Facility (SDF) and Standing Credit Facility (SCF) will remain at 0.5% and 3.5%, respectively.”
The board of CBS has decided to maintain the Monetary Policy Rate (MPR) at 2.0% for the third quarter of 2022. The robust rebound of the tourism industry provided the necessary momentum for a recovery in the domestic economy. This led to an improvement in production indicators and helped ensure stability in the exchange rate.
Following the pandemic, domestic economic recovery is being threatened by the effects of the war in Ukraine and its associated geopolitical tensions. The implications of the conflict were expected to aggravate the seasonal decline in visitor arrivals, however, an increase in the number of tourists from traditional Western European markets has helped to partially offset this reduction.
As travel and health requirements were being phased out globally, a robust rebound in tourism activity was observed, although it was not at the pre-pandemic level.
Nevertheless, the uncertainty surrounding the duration of the conflict poses downside risks to the tourism industry as countries in Europe and around the world begin to feel the impact of the war.
Production indicators in Q1 2022 were mostly positive compared to the same period last year due to the relaxation of health restrictions. However, compared to the last quarter of 2021, there were reductions in most indicators due to seasonal factors.
Looking ahead, domestic output is anticipated to remain dependent on the repercussions of the war in Ukraine.
The volume of transactions within the foreign exchange market increased on account of an overall improvement in tourism performance and production indicators.
The total volume of purchases and sales of foreign exchange was higher compared to 2021.
So far this year, the Seychelles rupee has been on a steady appreciating trend. Nonetheless, there are upside risks as domestic demand for foreign exchange adjusts to the higher cost of commodities and services globally.
Externally, countries across the globe are facing the economic and social consequences of the war. The conflict has had significant impact on the commodity markets, supply chains, inflation and financial conditions, all of which have exacerbated the slowdown in global growth.
There have been drastic increases in prices and volatility in energy markets. At the same time, global production and export of cereal crops and sunflower oil declined. Consequently, global commodity prices are expected to remain elevated within the short to medium term. The aforementioned factors are anticipated to prevail in the near term and influence domestic prices via the import channel for the rest of the year.
The decision to maintain an accommodative stance was taken by the board at its Monetary Policy Meeting held on June 27, 2022. The MPR remains at 2.0% and the interest rates on the SDF and SCF will be kept at 0.5% and 3.5%, respectively.
The board also approved for the Minimum Reserve Requirement (MRR) on rupee-denominated deposits to be increased from 10% to 13% effective July 13, 2022, while the MRR of 13% for foreign currency deposits of residents remains unchanged.
Cost of living
Cost of living remains high and will remain high for the next coming months, Governor Abel said, noting that the price of oil and food globally is expected to remain high.
“Inflation around the world is touching the sky and this will definitely affect our economy. An increase in salary does not mean it will help with that as it may cause an increase in inflation. The policy makers are aware of this situation and CBS is conscious about this and our role is to stabilise our market. We will have intense debates and on the technical side we are already working on it.”
CBS governor explained that when inflation goes up, there is a possibility for businesses to close down as they are no more viable.
Regarding domestic loans, CBS governor shared that there will be no big changes in interest rate happening for the next three months. But again, if inflation keeps rising, CBS will have to review its monetary policy and make sure that whatever funds the country is receiving, it will make sure that it lasts long.
Consumption of fuel
“In our case, if price of fuel keeps increasing, the price of products will increase. We also depend on fuel to produce electricity. Together with the government we have to push towards alternative energy for businesses and households. When our economic environment changes, we need to act fast. In Seychelles, government will have to take decisions on how to propose alternative energy source to help with the challenges and put some policies in place for all partners.”
Change of behaviours
“It is upon all of us to make the change. We all have to make the effort to review our consumption. Many countries started to adapt and embrace new ways to produce energy. CBS is trying but at the end of the day, each one of us has to be aware that the world is changing every day. In Seychelles we have to change the way we are doing things and beware that we are left behind. If we do not change our ways and behaviours we will be caught and will not know how to move forward.”
Diverting the economy is always on the table and CBS governor noted that we need more Seychellois to train in sectors like offshore.
“Every year CBS and FSA offer four scholarships and we have to put in more effort to train people to be able to develop new sectors.”
Foreign exchange
Governor Abel once again talked about how to bring financial services close to the public. “Today when we go in meetings, we do not hear about cash but rather digital. In our case in Seychelles, we have tourists coming in using mainly their cards. As Seychellois, whenever we travel, we think we need cash in hands and this needs to be changed. We have to talk to our banks and ask what alternatives can be given to us. The future is digital financial services. Reality of Seychelles is that we have more tourists coming from European countries and we have more euros. We have to be aware of the economic environment in which we are,” urged the CBS governor.
Currently our Gross International Reserves is at US $646 million and our net International Reserves US $493 million.
Governor Abel concluded by urging each one of us to be mindful of global developments and their impact on Seychelles.
“The economy remains fragile amid rising uncertainty and shifts in individual and collective behaviour are critical. There is also the need for careful discussion and alignment in policy direction to reflect the current economic challenges.”
In line with its objectives, the Central Bank remains vigilant and stands ready to adjust its policies if necessary.
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