Seychelles’s weakening rupee is fueling inflation and risks reducing the foreign reserves of the Indian Ocean archipelago, central bank Governor Pierre Laporte said.
The effect of the currency decline over the past three months may warrant tighter monetary policy, including raising commercial banks’ reserve requirements, Laporte said in an interview yesterday in Victoria, the capital. The rupee has lost 10 percent against the dollar since the end of October, according to data compiled by Bloomberg.
“The concern for the CBS is the ongoing depreciation of the Seychelles rupee against the main currencies and its impact on inflation,” he said.
Inflation in Seychelles, an African country of 115 islands that depends mainly on tourism and fishing for revenue, climbed to 5.5 percent in December, the highest level in more than two years, on rising fuel prices and as the weaker rupee boosted import costs. The debt crisis in Europe, the biggest source of tourists, may curb growth in 2012, which the International Monetary Fund estimated at 4 percent in 2011.
The rupee slumped to 14.35 per dollar on Jan. 20, the weakest since May 2009. It traded at 14.10 as of 10:20 a.m. local time.
The Central Bank of Seychelles may consider using foreign reserves, currently at $285 million, to curb the currency’s fall, Laporte said.
“The central bank will only intervene in the case of excess volatility and at the same time I cannot discard any further depreciation of the rupee in the coming months,” he said.
The government has endorsed a proposal by the Seychelles International Business Authority, the financial industry regulator, to open a stock exchange in the country this year, Laporte said.
“The planned opening of the equity market is scheduled for June 2012 with the listing of local and foreign companies,” he said, without giving more details.
About 73 percent of tourists to the Seychelles islands were from Europe in 2011, according to the financial statistics agency, including Britain’s Prince William and his wife Kate, who ended their honeymoon in the tropical destination.