Mauritius may no longer have scope to cut interest rates to weaken its currency and spur growth because headline inflation is ranging from 5 percent to 6 percent, central bank Governor Rundheersing Bheenick said.
“We can envisage an additional cut in the key repo rate only if inflation falls below” 4.9 percent, Bheenick told reporters today in Port Louis, the capital. The Bank of Mauritius kept its benchmark rate at 4.9 percent yesterday after reducing it in March and December.
Average headline inflation in the Indian Ocean nation over the past 12 months, a measure used by the central bank for monetary policy, was at 5.3 percent in May. Annual inflation will probably accelerate to 4.9 percent by December from 3.8 percent last month, according to Bank of Mauritius forecasts. Inflation probably won’t decelerate even if food and fuel prices drop, Bheenick said.
The bank left the repo rate unchanged after Bheenick announced the offer of a credit facility, in dollars and euros, to help companies cope with lower demand from Europe. The rupee has gained almost 15 percent against the euro since June 2009, according to data compiled by Bloomberg.
“What we don’t want is to hold the rupee responsible for the lack of competitiveness of our companies,” Bheenick said. “Monetary policy isn’t a panacea and cannot resolve all problems.”
The rupee fell 0.8 percent to 37.8167 against the euro, which accounts for 41 percent of foreign-currency income, by 1:27 p.m. in Port Louis. It also extended its decline against the dollar, trading 0.6 percent lower to 30.2250.
Europe, the country’s main trading partner, accounted for 65 percent of tourism arrivals in the first four months of 2012, according to data from Statistics Mauritius. The U.K and France are the biggest buyers of Mauritian manufactured goods.
Growth in Mauritius, a $10.8 billion economy with a population of 1.3 million people, eased in the first quarter from a year earlier, according to Bheenick. While the central bank expects the economy to expand 3.8 percent this year, a deepening of the European crisis could shave as much as 0.6 percentage point off that forecast, he said.
“It is not possible” for an export-oriented country such as Mauritius “to have a growth rate comparable to years before the crisis,” Bheenick said.
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