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Mauritius Central Bank injects $100M in forex market amid growing criticisms

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Mauritius Central Bank injects $100M in forex market amid growing criticisms

The Bank of Mauritius (BoM) has once again intervened for the third this month in the foreign exchange market and sold another $100 million on Wednesday 23 November at Rs 43.65/USD.

The Central Bank had sold $100 million at Rs 43.80 on 9 November and another $100 million at Rs 43.70 on 16 November.

Since January, the BoM has sold $770 million.

Meanwhile, anger and concerns continue to mount on latest balance sheet of the Bank of Mauritius (BoM) showing that its capital and reserves at the end of 31 October 2022 were wiped out.

Experts told l’Express that the BoM’s Total Comprehensive Loss of Rs 11 billion will serious impact its operational efficiency and ability to achieve monetary policy and financial stability objectives.

According to economist Kevin Teeroovengadum, the  situation was caused by “rash decisions”  of the authorities.

“In addition, the BoM has been drawing down its capital since the start of the pandemic and several international institutions, including the International Monetary Fund, had already warned that the Central Bank’s capital is too low and that it needs to be recapitalised, but nothing has been done so far,” he told l’Express.

According to Teeroovengadum, the BoM had espoused the view that inflation would be transitory and short term.

“But they got it wrong! It should have been able to anticipate the situation. They should have understood that inflation was going to rise rapidly and exceed the 10% threshold,” he was cited as saying.

Similar concerns came from Eric Ng, economist and director of PluriConseil.

“The Bank of Mauritius has pursued an inflationary policy. In addition, we have to take into consideration the credit risk of the MIC, which is totally owned by the BoM. If tomorrow there are bad debts and borrowers are not able to pay back the MIC, this will affect the Bank’s finances and further dilute its equity,” he warned.

“Worse, with interest rates rising in recent months, this will also reduce the value of MIC’s Convertible Bonds, as their value is inversely proportional to interest rate, and if the value of the bonds decreases in the market, it will impact the Bank of Mauritius’ Balance Sheet.”

And it does not stop here. Eric Ng alleged that BoM have allegedly made ‘bad decisions’ on external investments, which have also contributed to the Rs 11 billion loss.

“There are two options: either the government injects money into the Central Bank, but to do so it has to take on more debt, by issuing Government Securities, thus leading to higher public debt and eventually higher taxes. Or it prints more money!” Eric Ng was quoted as saying.

Sources: Defi Media, l’Express

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The information and opinions expressed in our published works are those of authors/sources believed to be reliable. NewsMoris makes no representations as to accuracy, completeness, suitability, or validity of any information expressed.