The Monetary Policy Committee (MPC) of the Bank of Mauritius has brought down the Key Repo Rate by 50 basis points from 4.00 per cent per annum to 3.50 per cent per annum at its meeting held last week in Port Louis.
The MPC took this decision after assessing the risks to the growth and inflation outlook and decided to give a fillip to the growth momentum. Accordingly, the key repo rate was cut down to 3.50 per cent per annum.
The Committee observed that growth in the domestic economy grew at 3.4 per cent year-on-year in the first quarter of 2017 compared to 3.8 per cent for the same period in 2016 and 4.2 per cent in the fourth quarter of 2016. It further noted that while investment spending firmed up, final consumption expenditure moderated and export of goods and services kept declining. Hence, the MPC viewed the need to stimulate more investment into the productive sectors of the economy. Bank staff projects real Gross Domestic Product growth rate at market prices to be between 3.6-3.8 per cent for 2017 and 4.2 per cent in 2018.
With regards to domestic inflation, the Committee noticed that inflation went up noticeably since the last MPC meeting, reflecting transient factors, including the impact of higher prices of alcoholic beverages, tobacco and Mogas and gas oil. Headline inflation rose from 1.3 per cent in March 2017 to 2.7 per cent in July 2017 while year-on-year inflation has been volatile and stood at 5.3 per cent in July 2017. Headline inflation is forecast at about 4.0 per cent for calendar year 2017 and at about 3.8 per cent in 2018. The MPC is of view that inflation is unlikely to pick up significantly, as the base effects would taper off subsequently.
As for the global economic outlook, the MPC observed that global economic activity maintained its momentum and the International Monetary Fund projects a pick-up in global growth from 3.2 per cent in 2016 to 3.5 per cent in 2017 and further to 3.6 per cent in 2018. However, the growth outlook is subject to downside risks stemming mainly from policy uncertainty in advanced economies, financial sector vulnerabilities in some countries, and rise in protectionism. Amid easing oil prices, global inflationary pressures have subsided, especially in advanced economies where inflation remains at levels below central bank targets, it concluded.
The MPC also took note of the Bank's efforts to deal with the excess liquidity situation and continues to maintain strong vigilance in monitoring the economic and financial developments and remains ready to intervene if the need arises.