Mauritius Finance Ministry, Central Bank Disagree Over Rates

Mauritius’ Finance Ministry repeated its opposition to an increase in the benchmark interest rate that has put it at odds with central bank Governor Rundheersing Bheenick, who is concerned about inflation.

The majority of the eight-member Monetary Policy Committee voted on Feb. 3 to keep the key repurchase rate unchanged at 4.65 percent, where it’s stood since June. The statement announcing the rate decision said members were divided on the need to “address the risk to inflation and the excess liquidity situation, while enhancing savings in the economy.” It didn’t give a breakdown of the vote.

“An increase in the key repo rate would not reduce excess liquidity,” the Finance Ministry said in today’s statement. “Quite the opposite, the tendency would be to reduce demand for new loans and increase excess liquidity.”

Bheenick, who is serving a third presidential-appointed term through 2016, has been advocating for a rate increase since at least last year, citing a deteriorating inflation outlook. Headline inflation in the Indian Ocean island nation rose to 3.7 percent in January, the highest in nine months.

A “surge” in the amount of money in the banking system has been caused by low loan demand, warnings from the central bank it wants to raise rates, regular purchases of foreign currencies to build reserves and lending restrictions, it said.

The ministry has in the past few months revised its debt strategy to help address the situation of “excess” liquidity, which rose 37 percent to 11.1 billion rupees ($368 million) on Jan. 23 from two weeks earlier, central bank figures show.

Before it's here, it's on the Bloomberg Terminal.