The Bank of Mauritius (BoM) is introducing its new Monetary Policy Framework (MPF) effective this Monday 16 January 2023.
The new framework is expected to address the deficiencies of the existing one and help to further strengthen monetary policy operations and the monetary policy transmission mechanism.
According to Jaya Patten, Managing Director and founder of Capital Markets & Fundraising, the BoM intends to ensure that it chooses the rate itself and not be dictated by the amount of liquidity in the market.
“When the BoM raises the policy rate, it wants the commercial banks to do the same. However, the impact will be less on savings compared to the effect on the volume of credit,” he said.
The BoM will maintain a symmetric interest rate corridor of 200 basis points around the “Key Rate” through standing facilities. Banks with excess liquidity or shortage of liquidity may use the standing facilities to clear their liquidity positions.
The corridor will be operated as follows: An Overnight Lending Facility (OLF) will be made available to banks at their discretion at the “Key Rate” plus 100 basis points; and an Overnight Deposit Facility (ODF) will be offered to banks at their discretion at the “Key Rate” minus 100 basis points.
With inflation estimated at 12.1%, Joël Villeneuve Anaudin, Managing Director of CTA Services Ltd, said over five years with the same overall inflation rate, a borrower’s purchasing power will fall by 50%, or about 10% per year.
BoM analysts believe that through the issuance of 7-Day Bank of Mauritius Bills, banks will be remunerated at a higher rate. They expect banks to pass on this higher remuneration to their customers by hiking savings rates.
With the new monetary policy framework, the objective is to bring the inflation rate down – between 2% and 5% in the medium term. The Bank of Mauritius is also forecasting an inflation rate of 5%-6% this year.
Governor Harvesh Seegolam added that all commercial banks are ready for the coming into force of the new framework. “However, some minor fine-tuning are expected in the coming weeks,” he said.
Sources: Stock Exchange of Mauritius, Defi Media
