Monetary Policy Committee meeting: Repo rate left unchanged at 4%

A meeting by the Monetary Policy Committee, on Thursday 10 November 2016, has left the key repo rate unchanged at 4 per cent per annum.

The Monetary Policy Committee (MPC) has chosen caution over any pre-emptive measure in its first meeting held on Thursday 10 November, a day after the election of Donald Trump as president of the United States.

There have been numerous developments on the international and domestic fronts, stated the Governor of the Bank of Mauritius, Ramesh Basant Roi, during a press conference after the MPC’s meeting. “It is hard to say how the international situation will evolve, particularly with the election of a new president in the USA.”

On the domestic front, the rate of inflation is currently at historical lows of 1% according to estimates of the BoM and the central bank expects the general price level to take an upward trend in 2017. “Domestic inflation remains so far muted, with headline inflation contained at below 1 per cent in line with subdued global commodity prices and persistent slack in the domestic economy,” said the MPC’s press release. 

“The export sector is performing below par. The prime reason being that we have a strong monetary policy and the second one being higher labour cost. This is a normal trend,” stated the Governor. Following the last MPC meeting, the Brexit vote has impacted on level of investments, which has “flattened out” according to Ramesh Basant Roi. A sizeable chunk of the country’s exports, between 11 and 12% is sent to the United Kingdom. However, only 6% of those are labelled in pounds sterling.

Measures of core inflation have also been low and moderate. Headline inflation was flat at 0.8 per cent in September and October 2016. It is projected at around 1 per cent in 2016 and to rise gradually to a range of 2 to 3 per cent in 2017. The MPC also took note of the steps taken by the Bank of Mauritius to mop up excess liquidity in the banking system and discussed a new monetary policy framework that the Bank is proposing to implement in early 2017.

Growth in 2016 will remain subdued according to the central bank which estimates the figure at 3.5% – lower than the forecast of Statistics Mauritius. The MPC discussed prevailing domestic economic and financial conditions and noted that, currently, the economy is operating below its potential. Bank staff is now projecting a real GDP growth rate of 3.5 per cent for 2016. 

“The MPC took note of the Bank staff growth forecast for 2017 ranging between 3.8 and 4 per cent. It is expected that the implementation of major infrastructure projects, as announced in the Budget, should give a boost to investment in 2017,” said the document.

Global economic conditions remain subdued. The IMF has maintained its world growth projection for 2016 at 3.1 per cent and 3.4 per cent for 2017 in its World Economic Outlook released in October 2016. The MPC noted that risks to the global growth outlook remain tilted on the downside due to stagnating global trade, Brexit, intensified financial markets volatility and geopolitical risks.