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The Mauritian rupee’s recent stability may ease imported inflation, though increases in food and fuel costs may push consumer prices higher, the central bank said.
“The stability of the rupee observed since November 2011 is likely to limit the inflationary pressures arising from external sources,” the Bank of Mauritius today said in an inflation report published on its website. “While underlying inflationary pressures have eased slightly, increasing global food and oil prices could represent an upside risk to the inflation outlook.”
The rupee has weakened 0.9 percent against the U.S. currency since November, trading at 29.05 per dollar at 5:50 p.m. in Port Louis. The rupee has gained 3.4 percent against the euro, the currency of Mauritius’s main trading partner, according to data compiled by Bloomberg.
“The behavior of the rupee exchange rate vis-a-vis major trading partners’ currencies and the pass-through to import prices of food and non-food commodities is likely to be a major critical factor in shaping up inflation,” the bank said.
Inflation in the Indian Ocean island nation has been easing since December. It slowed to 3.8 percent in March, the lowest rate since October 2010. The central bank’s Monetary Policy Committee has cut the benchmark interest rate by a total of 0.6 percent since Dec. 5 to 4.9 percent to boost growth.
Mauritius, with a population of 1.3 million people, is a net buyer of food and fuels, with 67 percent of import bills in dollars, according to central bank data. The euro represents 41 percent of foreign-currency earnings.
The economy will “continue to operate below its capacity in the near term,” the central bank said. “Muted consumer sentiment in main export markets is expected to weigh on external demand-led sectors such as tourism and textiles.”
Europe accounts for almost two-thirds of tourist arrivals, with the number of visitors declining 2.7 percent to 171,669 in the first quarter. The U.K., France, Italy and Spain bought 49 percent of manufactured goods in February.
The economy will expand 3.6 percent to 3.7 percent this year, according to Finance Minister Xavier Luc Duval. The Mauritius Chamber of Commerce and Industry raised its forecast to 3.9 percent today from 3.8 percent in November. The central bank predicts growth of 3.8 percent this year.
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