Inflation Hits 3.8% as Governor Outlines 2026 Roadmap for Economic Stability

The Governor of the Bank of Mauritius, Priscilla Muthoora-Thakoor, has called for a strategic overhaul of national policies to protect the country’s “investment grade” status, warning that the nation must “capitalise” on its current standing to avoid a credit downgrade.

Speaking at a press conference on Wednesday, February 11, at the Bank of Mauritius, the Governor addressed a comprehensive range of macroeconomic challenges, including global inflation, foreign investment, and the recent observations from ratings agency Moody’s.

While Moody’s has praised the “economic management” and the diverse nature of the Mauritian economy, it has maintained a negative outlook, linking any future upgrade to a sustainable reversal of the country’s rising debt.

“I think we can capitalise on the fact that we are still in the investment category and improve policies to, at the very least, maintain this rating and perspective, and not be downgraded,” Mrs Muthoora-Thakoor told reporters.

Inflation and Monetary Policy

The Governor confirmed that headline inflation stood at 3.8% in January, a figure she described as “reassuring” and well within the Bank’s target range, nearing the medium-term goal of 3.5%.

• Forecast: While a slight rise is expected due to seasonal variations, the Bank predicts it will soon trend back toward the target.
• The Repo Rate: Addressing the 4.5% Repo rate, the Governor emphasised that price stability remains the Bank’s “exclusive focus.” She noted that while stable prices and coherent fiscal and monetary policies are “necessary conditions” for growth, they are not sufficient on their own to stimulate investment.

Currency Markets and the Rupee

The Governor noted that while the market has not yet reached a state of “net supply” or currency excess, conditions have improved significantly compared to last year.

• Reduced Intervention: The Bank has scaled back market interventions as currency inflows have improved.
• Wait Times: The time required for businesses to obtain foreign currency has decreased over the past 12 months.
• Dollar Volatility: The Rupee saw an appreciation of 0.8% against the US Dollar in late January. This followed a period of US political uncertainty (12–26 January) and a subsequent recovery of the Dollar after the appointment of the new Federal Reserve Governor.
• Active Monitoring: The Bank remains in regular contact with commercial bank CEOs and treasurers, ready to intervene if conditions justify it.

2026 Economic Outlook

The Bank expressed “cautious optimism” for the 2026 financial year, citing several key drivers for a narrowed current account deficit:

• Energy Prices: International agencies, including the IEA, forecast a downward trend in oil prices for 2026, though Middle Eastern geopolitical tensions remain a volatile risk factor.
• Trade Balance: A lower oil bill, combined with the “normalisation” of vehicle imports following a 2025 peak, is expected to reduce the national import bill.
• Tourism and Services: The Bank expects sustained high performance in tourism and financial services, matching the strong results of 2025.
• Gold Reserves: The Bank welcomed the rise in gold prices, which has bolstered reserves, though these are being managed with an awareness of market risks.

Institutional Reforms and the MIC

The Governor confirmed that the Bank of Mauritius’s exit strategy from the Mauritius Investment Corporation (MIC) is “on track.” Procedures are underway to return undisbursed funds from the MIC to the Central Bank.

Furthermore, a capital injection of MUR 3 billion has been transferred from the Treasury to strengthen the Bank’s balance sheet, as noted in the 2025 Annual Report and the Finance Act.

This move addresses long-standing IMF concerns regarding balance sheet strength. Despite these concerns, the Governor maintained that the Bank remained profitable through 2024-2025 and is currently having its asset-liability management methodology reviewed by the IMF.

Future Challenges

Regarding the African Growth and Opportunity Act (AGOA), she noted that while a one-year extension is “too short” to see large-scale manufacturing investment, it remains a “positive development” for the start of the year.

Since taking office in September 2025, the Governor identified the upcoming “mutual evaluation” of national regulatory and supervisory frameworks as a primary hurdle.

Looking ahead, the Governor identified upcoming mutual evaluations of regulatory and supervisory frameworks as a primary challenge, pledging to ensure the country passes “with flying colours.”

Source: Le Mauricien