Interest Rate Held at 4.5%: BoM Prioritises Caution Amid Global Uncertainties

In a world increasingly fraught with commercial tensions, particularly in light of the United States’ new tariff policies, the Bank of Mauritius (BoM) has opted for a stance of prudence. Convening 7th May morning, the Monetary Policy Committee (MPC) reached a unanimous decision to maintain the benchmark interest rate at 4.5% per annum, thereby affirming a wait-and-see approach in the face of prevailing economic uncertainties.

Monetary Policy Committee’s Unanimous Stand

Addressing the press, BoM Governor Rama Sithanen, flanked by First Deputy Governor Rajeev Hasnah, emphasised that this decision is grounded in a balanced assessment of the risks confronting both growth and overall inflation.

“We are navigating a phase where vigilance is paramount. Currently, the downside risks to growth outweigh the upside risks to inflation,” asserted Sithanen.

He further cautioned that any hasty alteration of monetary policy in this climate of uncertainty could jeopardise internal stability.

Growth Forecast Adjusted to Between 3% and 3.5%

Governor Sithanen projects, based on various hypotheses formulated by his team, that the Gross Domestic Product (GDP) growth will range between 3% and 3.5% for 2025, a downward revision from the previous forecast of 3.5% to 4.0%.

This adjustment is largely attributed to a 5.8% decline in tourist arrivals at the beginning of the year, stemming from a decrease in European visitors.

While the figures for April appear more promising, the overall trajectory remains precarious.

Inflation and Labour Market Overview

Moreover, the BoM anticipates that headline inflation will reach 3.5% by the end of the year.

However, core inflation, excluding volatile elements such as energy and food prices, remains elevated, reflecting rising costs in services and wages.

The governor noted that the labour market remains robust, with a low unemployment rate of 5.8% recorded in the last quarter of 2024.

Yet, he sounded the alarm over the widening current account deficit, which has ballooned to 6.4% of GDP, primarily due to a significant trade deficit.

Rupee Volatility and Forex Market Intervention

In addition, the BoM continues to intervene in the foreign exchange market to manage the volatility of the rupee, while allowing the currency to reflect underlying economic fundamentals.

The rupee has appreciated by 5.1% against the US dollar, although it has depreciated against the euro and the British pound.

“Forex sales to commercial banks in the first quarter were higher by $101.3 million compared to the same period in 2024, and for April, they exceeded those of April 2024 by $159.1 million,” explained Sithanen.

“There is an improvement in Forex, with a substantial inflow of dollars, which can only alleviate pressure on this currency. Naturally, we cannot resolve a situation that has persisted for five years in just five months,” the governor added.

Global Economic Uncertainties and Trade War Risks

In his analysis of the global economic landscape, Governor Sithanen elaborated on the uncertainties surrounding a potential trade war, which he believes could adversely impact global growth.

This has prompted organisations such as the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) to revise their growth forecasts for 2025 downwards.

He noted that the IMF has lowered its global growth projections by 0.5 percentage points, while the OECD anticipates a slowdown to 3.1% in 2025.

Sithanen concluded that the risks to global growth are predominantly negative, with protectionism and financial instability posing additional concerns.

Source: l’Express