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BoM Governor Assures a Close Watch on the Foreign Exchange Market
In response to concerns about the shortage of foreign currencies in Mauritius, the Governor of the Bank of Mauritius, Harvesh Seegolam, has assured that the situation is under close surveillance. He addressed the press on July 11, after the Monetary Policy Committee (MPC) decided to maintain the interest rate at 4.5%.
The operators and individuals have been lamenting a shortage of foreign currencies in Mauritius, but Seegolam emphasized that the situation is being closely monitored by the central bank.
“Whether in the financial sector or in the tourism industry, businesses and hotels regularly sell foreign currencies on the market. As a result, the market functions smoothly,” he explained.
The Governor highlighted that the country is currently experiencing a period where most local importers order their year-end supplies, resulting in an increase in demand for foreign currencies.
The Bank of Mauritius has been intervening to sell $50 million on Monday last week.
“We will continue to monitor the situation and the central bank will intervene if necessary. But be assured that the Bank of Mauritius is not short of resources,” Seegolam emphasized.
According to him, what is more important is ensuring that the market functions in an orderly manner.
The central bank has closed its Gross Official International Reserves at $8.2 billion, which Seegolam considered comfortable.
“The BoM has sufficient resources to supply the market if necessary and also to control excessive volatility,” he added.
Furthermore, he pointed out that there is already a mechanism in place to track the entry and exit of foreign currencies on the local market.
“In fact, we are the only organization in the country with a comprehensive view of the foreign exchange market. We have a department that monitors the situation daily,” he assured.
However, he clarified that there is no control over foreign exchange transactions in the country. “It’s actually one of our most important advantages for investment,” he said.
From April 3 to June 28, 2024, the volume of foreign exchange transactions reached $3.1 billion, with net purchases of $127 million.
Guidelines on Forward Rate: Discussions Underway
Seegolam also mentioned that discussions are underway with the Board of Directors of the Bank of Mauritius regarding guidelines for forward rates.
“We are discussing with treasurers and CEOs of banks. The discussions will continue to find a solution that benefits all parties. We must ensure it does not create distortions in the smooth functioning of the foreign exchange market,” he emphasized.
Many central banks worldwide have already established guidelines for forward rates.
Growth Projection Remains at 6.5% for 2024
Regarding growth prospects, the Bank of Mauritius is expecting the national economy to maintain its robust momentum.
The bank’s personnel maintained its projection of real Gross Domestic Product (GDP) growth at 6.5% in 2024.
Construction, hospitality and food services will be among the main drivers of growth.
Supported by large-scale infrastructure projects currently underway, the construction sector will maintain a good performance with a two-digit growth rate.
“The tourism sector will continue to play an important role as a growth driver, given expectations of 1.4 million tourists this year,” Seegolam said.
The financial sector will continue to grow with concerted efforts to strengthen international reputation of Mauritius’ financial center.
Global demand will be supported by an increase in household consumption and dynamic investment spending.
Interest Rate Remains Unchanged at 4.5%
The MPC decided to maintain interest rates unchanged at 4.5%, effective July 11, after considering domestic and international developments.
The Committee examined macroeconomic implications specifically in the Mauritian context.
“The recent inflation data show encouraging signs that disinflation is continuing and it is very likely to continue in the second half of 2024,” Seegolam emphasized.
On the other hand, certain domestic factors favorable to a faster reduction in inflation are emerging.
There has been a faster-than-expected normalization of local food prices, a reduction announced for household gas prices, and an extension of subsidies on basic necessities as part of Budget 2024-25.
“Furthermore, recent developments in commodity prices and inflation readings from major partner countries support lower price pressures domestically,” Seegolam said.
The Governor highlighted that current monetary policy continues to exert restrictive effects on the economy and maintains price pressures under control while maintaining anchored inflation expectations.
Inflation Target: 4.9% by End-2024
The central bank indicated that global inflation continued to ease to 4.5% in June 2024, within its target range of 2-5% for the first time since January 2023.
Annual inflation also maintained its downward trajectory at 2.2% in June 2024, reflecting progressive normalization of fresh vegetable prices.
Underlying inflation measures, which indicate underlying inflationary pressures, have also continued to decline. A growth rate of 4.9% is expected by end-2024.
Source: Defi Media