Mauritian Rupee: A New Monetary Policy to Address the Current Issue

The appointment of a new governor at the Bank of Mauritius is part of a strategy aimed at restoring the value of the rupee. Revaluing the rupee is a priority for the newly elected government led by Navin Ramgoolam. In fact, economist Rajeev Hasnah stated on Radio Plus in February that 85% of inflation is linked to the depreciation of the rupee.

The new Prime Minister dismissed Harvesh Seegoolam from the leadership of the Bank of Mauritius. However, can the improvement in purchasing power be solely reliant on strengthening the rupee?

Prime Minister Navin Ramgoolam criticized the economic choices made by his predecessor.

He explained his decision to replace Harvesh Kumar Seegoolam with Rama Sithanen at the helm of the Bank of Mauritius (BoM).

“I don’t understand why the Bank of Mauritius was depreciating the rupee.

Because of this, I appointed a new governor, Rama Sithanen,” he stated, expressing his dissatisfaction with what he described as a harmful monetary policy that led to an accelerated depreciation of the rupee following the general elections.

In an interview with Défi Plus shortly after his appointment, Rama Sithanen emphasized that “we must do everything in our power to stop the depreciation of the rupee, which is causing inflation and reducing our citizens’ purchasing power.”

According to Navin Ramgoolam, this devaluation was deliberate, aimed at artificially keeping public finances afloat at the expense of Mauritians’ purchasing power.

The Consequences of a Devalued Rupee

Economist Takesh Luckho argued that the previous government’s economic strategy relied on a voluntary depreciation of the rupee, which allowed for maximized tax revenues.

“It is due to this intentional depreciation of the rupee that we reached record revenues of Rs 146 billion,” explained Luckho.

While this approach temporarily boosted state coffers, it weakened household purchasing power and contributed to rising costs for imports, particularly food products.

This situation, combined with persistent inflation, has increased frustration among citizens.

Aware of these pressures, Navin Ramgoolam seems determined to break from these practices, aligning his actions with the electoral promises of the Alliance for Change: stabilizing the rupee and increasing purchasing power.

New Monetary Policy

The appointment of Rama Sithanen as governor of the Bank of Mauritius is seen as a strategic move.

Takesh Luckho asserted that replacing the governor was crucial, as the program that the Alliance for Change intends to implement is fundamentally opposed to the economic policies promoted by Pravind Kumar Jugnauth and his government over the past five years.

Having previously served as Minister of Finance, Rama Sithanen is tasked with revitalizing the rupee.

“The new governor will bring a new monetary philosophy aimed at restoring value to the rupee,” said Luckho.

However, this task is expected to be challenging due to external pressures, such as the recent strengthening of the US dollar following Donald Trump’s election as president.

Rethinking Economic Strategy

As Amit Bakhirta, founder of Anneau, noted in an interview for the Economy Supplement on November 12, “A country’s currency is the primary and foremost indicator of its socio-economic prosperity.”

A stronger currency typically signifies better control over imported inflation over the long-term macroeconomic cycle.

“This means that purchasing power is reasonably well-protected and that investments from both domestic and foreign investors yield genuinely positive returns (adjusted for inflation and currency fluctuations), and that leaders are exemplary and trustworthy,” he added.

Bakhirta had already claimed in March 2023 in the Défi Quotidien that “the rupee has lost 76% of its value against the dollar since 2002.”

To restore value to the rupee, it will be essential to bolster foreign exchange reserves.

According to Takesh Luckho, this requires diversifying income sources, including reviving tourism and attracting foreign investments.

Additionally, Luckho considered reducing fuel prices as an immediate lever to relieve households.

However, he stressed that this decrease must be accompanied by clear mechanisms to ensure that it is reflected in the prices of essential goods and services.

Mauritius Investment Corporation

Reforming the Mauritius Investment Corporation (MIC) is also a priority.

Takesh Luckho argued that the MIC, often criticized for its lack of transparency, should be entirely separate from the Bank of Mauritius.

“I believe that as Mauritius may be called upon to receive new revenues, particularly related to the lease of Diego Garcia, the MIC could play a key role in optimally managing these funds,” asserted Luckho.

He advocated for a thorough review of this organization’s role so that it becomes a tool for sustainable economic development, rather than merely a financial support mechanism.

Source: Defi Media