Mauritian Rupee’s Value Against Dollar Increases by Rs 0.32 in One Month

The recent interest rate cut by the US Federal Reserve (Fed) will offer little more than temporary relief for the Mauritian Rupee (MUR), as persistent local economic fragilities threaten to undermine any potential gains.

Despite the Mauritian rupee’s slight appreciation against the dollar following the Fed’s decision, local experts warn that the currency’s long-term outlook remains clouded by a persistent trade deficit.

The local currency’s value rose from Rs 46.13 on August 19 to Rs 45.81 a month later.

Fed’s Monetary Easing and Global Context

The Fed’s decision on September 17 to cut its key interest rate by 25 basis points to a new range of 4.00% to 4.25% was its first such move in 2025.

This action, part of a global trend, was a response to signs of economic slowdown. The Fed’s chair, Jerome Powell, indicated that future policy decisions will be data-dependent, not based on a predetermined schedule.

Other major central banks have also adjusted their policies. The European Central Bank (ECB) reduced its rate to 2.00% in June, while the Bank of England (BoE) followed suit in August, cutting its rate to 4.00%.

Mauritian Response and Local Market Interventions

In Mauritius, the central bank has held its key rate at 4.5%. According to Governor Rama Sithanen, the global slowdown and trade tensions could put downward pressure on the US dollar, which could moderate import prices for a heavily import-dependent economy like Mauritius.

The Bank of Mauritius has intervened directly in the foreign exchange market to manage the rupee’s volatility.

It has conducted three dollar sales: $10 million on August 25 (at Rs 45.65), $15 million on September 10 (at Rs 45.50), and a further $15 million on September 16 (at Rs 45.26).

These interventions are not new, according to Bhavik Desai, General Manager at Accresco. He noted that they have been in place since 2010 to curb excessive exchange rate fluctuations.

He added that these measures have not significantly affected international reserves, which stand at over $9 billion—more than twelve months of import cover.

Challenges to the Rupee’s Appreciation

While economic theory suggests that the growing interest rate differential between Mauritius and the US should attract financial inflows and strengthen the rupee, local realities complicate this.

Desai explained that the country’s persistent trade deficit, which has grown from an average of 20% of GDP pre-pandemic to nearly 30% in the last three years, creates a constant demand for foreign currency.

Recent data shows that imports of goods and services rose by 7.3% in the first quarter of 2025, while exports grew by only 2.2%, driven by weak performance in sectors like tourism. This has led to a visible trade deficit of Rs 14.57 billion in July.

Expert Analysis and Future Outlook

Cédric Beguier, Head of Investment Strategy at AXYS, warns that without addressing these fundamental imbalances, a gradual depreciation of the rupee is the most likely scenario.

While the Fed’s rate cuts may offer a short-term phase of stabilisation, any sustained improvement depends on local economic policy.

Beguier suggested that for the rupee to hold its value, the Mauritian key rate must remain attractive—with a differential of 150 to 250 basis points over the US rate.

He also stressed the need to curb consumer credit and reduce non-essential imports.

According to Beguier, the central bank’s interventions, while effective in calming short-term volatility, are temporary measures.

He said they must be part of a clear strategy to avoid exhausting foreign reserves.

Beguier highlighted three key risks associated with the weakening rupee:

• Imported Inflation: A weaker rupee raises the cost of imported goods, such as food and energy.
• Trade Balance: Increased import costs can outpace export gains, worsening the trade deficit.
• Corporate Balance Sheets: Businesses with dollar-denominated debt face higher repayment burdens.

To ensure long-term stability, Beguier recommends that Mauritius implement a coherent policy to generate foreign currency through services and productive foreign direct investment, while also maintaining a credible interest rate differential.

Source: Defi Media