- 22 July, 2016:
The Monetary Policy Committee (MPC) of the Bank of Mauritius has cut down the Key Repo Rate which stands at 4.40 per cent by 40 basis points to 4.00 per cent per annum at its meeting on 20 July 2016 in Port Louis.
The MPC took this decision after assessing the risks to the growth and inflation outlook and considered that the downside risks to the domestic growth outlook outweighed the risks to the inflation outlook. Taking into account the uncertainty created by Brexit and potential for the US November elections to increase market volatility, the MPC deemed it important to support investment activity in the country and raise the growth potential of the economy.
The Committee observed that growth in the domestic economy increased to 3.7 per cent in the first quarter of 2016, driven by key services sectors. However, it further noted that the economy continues to suffer from weak private investment and relatively sluggish export performance. Bank staff lowered their projection for real GDP growth to 3.6 per cent for 2016 owing to latest global developments, especially in the aftermath of Brexit, which can heighten downside risks to domestic growth. For 2017, growth is expected to improve to 3.8 per cent.
Regarding domestic inflation, the Committee highlighted that it has remained low against the backdrop of moderate international commodity prices, weak global economic activity and subdued domestic demand. Headline inflation retreated from 1.3 per cent in January 2016 to 0.9 per cent in June 2016, while year-on-year inflation rose from 0.4 per cent to 1.1 per cent over the same period. Headline inflation is projected at around 1.5 per cent for 2016 and around 3.0 per cent in 2017, slightly lower than what was anticipated at the February 2016 MPC meeting.
The MPC also took note of the significant amount of open market operations undertaken by the Bank to reduce the level of excess liquidity in the money market and viewed that this would help in the monetary policy transmission mechanism.
As for the global economic outlook, the MPC observed that downside risks to the international economy have increased in the wake of the UK’s referendum in favour of Brexit. It further pointed out that in its latest World Economic Outlook update released on 19 July 2016, the IMF revised down global growth further to 3.1 per cent for 2016 amidst increased uncertainty. Financial markets are expected to remain volatile. Interest rates in advanced economies are expected to remain at low levels. Against a backdrop of subdued global demand and commodity prices, global inflation risks are also expected to remain low in the near to medium term, it concluded.
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