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Mauritius Unexpectedly Cuts Policy Rate to Spur Sluggish Growth

June 17 (Bloomberg) -- Mauritius’s central bank unexpectedly cut its key interest rate to a record low and reduced its growth forecast, saying it will remain vigilant in helping support the economy.

The Monetary Policy Committee, led by Governor Rundheersing Bheenick, lowered its key rate to 4.65 percent from 4.9 percent in a majority decision, according to a statement published on the Port Louis-based institution’s website today. Three out of five economists and analysts surveyed by Bloomberg predicted the rate would remain on hold, while two forecast a 10 basis-point increase.

“The global economy is still slow,” Ahmed Parkar, director of the Joint Economic Council, which represents businesses in Mauritius, said by phone before the announcement was made. “Our main economic pillars are affected, particularly the tourism sector. We must therefore seek growth.”

The bank reduced its 2013 economic growth forecast to a range of 3.2 percent to 3.7 percent from 3.4 percent to 3.9 percent estimated at the previous meeting, according to the statement. The economy expanded 3.3 percent last year, according to government data.

“The MPC discussed alternative interest rate scenarios and was divided on the risks to the growth and inflation outlook,” according to the statement. “The MPC maintains strong vigilance in monitoring economic and financial developments.” Policy makers will convene between regular meetings if the need arises, the bank said.

Inflation is forecast to accelerate between 5.3 percent to 5.8 percent by the end of December, compared with 3.7 percent last month, as salary demands increase, the bank said.

“Upside risks to the inflation outlook arising mainly from the public-sector wage award and possible spillovers to private-sector wages remain significant,” the bank said.

Weakness in Europe, the market for about two-thirds of Mauritian exports and half of tourist arrivals, has affected the economic outlook while inflation is “under control,” Finance Minister Xavier Luc Duval said in April. The Indian Ocean island nation in May cut its 2013 forecast for visitor arrivals to 990,000 from 1 million.

To contact the reporter on this story: Christina Vilbrin in Johannesburg at cvilbrin@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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