Ag. Deputy Financial Secretary, Mr P. Yip

Ministry of Finance and
Economic Development
Monetary Policy Committee Meeting
14 July 2014
Presented by Mr Patrick Yip Wang Wing,
Ag. Deputy Financial Secretary
The Policy Context
Government restated its resolve to
embark on a Transformation Agenda
underpinned by the 3 objectives of :–
• High Income
• Inclusiveness
• Sustainability
Specific Policy Announcements
• Reform of the public sector, in particular
rationalisation of activities of parastatal bodies
• Reforms in business facilitation, with particular
attention to SMEs
• Reactivation of the Financial Services
Consultative Council to take the sector to a
new threshold of development
• Better coordination of macroeconomic policies
The High Income Economy
First announced in Government Programme 2012-2015
• Mauritius’ per capita GNI at US$9,300 in 2013 covered 72% of the road to High Income Country status
(US$ 12,746)
• MOFED launched consultations with stakeholders on
measures for accelerating this national effort,
particularly on :
well-focused structural policies to boost growth,
productivity and competitiveness;
fundamental reforms in key areas of the economy and
society; and
strong and effective macroeconomic policies.
Coordination of Macroeconomic Policies
Memorandum of Understanding between
• Effective management of excess liquidity
and sharing of cost;
• Strengthening Bank of Mauritius’
capital; and
• Setting of an inflation target.
Explicit Inflation Target
To better anchor inflation expectations and
factor in other economic considerations such
as growth and employment
To also facilitate the work of the MPC
Standing Committee on Inflation Target
(MOFED and BOM) to pursue discussions on
the inflation target and the modus operandi
Excess Liquidity
IMF recommendation:
• Mopping up of excess liquidity to be
accompanied by a technical downward
adjustment in the Key Repo Rate
• This is necessary to speed up the
convergence between the Policy Rate
and the Interbank Rate, and allow for
greater effectiveness of the monetary
transmission mechanism
Excess Liquidity … cont’d
IMF supports comprehensive approach of Joint
Working Committee on Liquidity at MOFED
Various measures and policy options subject of
in-depth technical discussions and extensive
consultations between MOFED, BOM and IMF
Latest draft MoU, which MOFED has shared with
the Bank, should provide a solid and sound
foundation for continued institutional
Excess Liquidity … cont’d
Government borrowings of Rs 4 bn already
frontloaded to mop up excess liquidity
MOFED will shortly issue additional
Rs 2 bn of 5-Year Bonds [fixed coupon rate of
6% p.a. and Inflation Index-linked] on a retail
• Opportunity for small savers to get higher
return on their savings
• Provide full protection from inflation
Global Economy
Momentum in global economic recovery less
strong than expected earlier
• Disappointing first quarter:
o Euro Area: 0.2% - France stagnating & Italy
o US: -2.9%
Recovery remains tepid and uneven - not strong
enough to reduce unemployment and debt.
Significant downside risks - accommodative
monetary policy stance for a prolonged period
Domestic Economy
• Growth in 2014 lower than initially forecast
• First quarter growth rate only 2.4% in Q1 2014
(3.8% in Q1 2013)
• SM revised downwards growth projection
for 2014 from 3.7% to 3.5%
o Textile: 1.5% against 2% expected in March
o Other Manufacturing: no growth against 2%
o Construction sector: -4.8% against -3%.
• Tourism sector recovering: 3.5% against 3% but
downside risks remain
Investment & Employment
Sluggish private investment
• Private investment as % of GDP: drop from 16.2% in 2013 to
15.2% in 2014 - a bigger drop than initially forecast
• Acute fall in “Residential and non-residential buildings”
• “Machinery and equipment” to grow by 8.7%
• “Other construction work” to recover (17.7%) due to public
sector investment
• Stabilised at 8% over past two years
• Forecast at 8% in 2014
• But youth unemployment increasing to 24.7% in Q1 2014
• Headline inflation in June stabilised at 4% for 4th
consecutive months
• Year-on-year inflation declining from 4.5%, 4.2%, 3.4%
to reach 3.3% in June
• International prices to remain flat or decline
• Total wages and total consumption growing at much
slower pace
SM projections for 2014: inflation will be below the 4.5%
initially forecast - closer to the lower bound of 4%.
Expectations of lower inflation remain well anchored
Fiscal Policy
Further progress towards fiscal consolidation
Performance in 1st semester shows lower budget
deficit and Government borrowing requirements
by about 0.3 to 0.5 GDP points.
Significant improvement in the pace of
implementation of capital budget and public
sector infrastructure projects
MOFED continue to address project preparation
and execution constraints, including public
procurement procedures and processes
Fiscal Policy … cont’d
Mauritius Infrastructure Fund Ltd to be set up
- innovative funding structures and
• Speedier implementation of large infrastructure
projects (e.g MLRT)
• New possibilities for private investment in public
infrastructure development
• Contributing to reduce excess liquidity
• Reduce dependence on budgetary resources
• Facilitate achievement of debt target of 50% of
GDP by 2018
Global Trend in Policy Interest Rate
Current monetary policy stance not indicating
any rising pressure on price level
• Kept policy rate unchanged - US Federal Reserve,
Bank of England, Reserve Bank of India, Bank of
Japan, and South African Reserve Bank
• European Central Bank (ECB) cut benchmark rate
from 0.25% to 0.15% in June. Kept same rate in
Interest rates to remain at their present level for
an “extended period of time in view of the current
outlook for inflation”
Situation warrants very careful approach to monetary
• There is still uncertainty
• GDP growth forecast lowered
• Inflationary pressures very subdued
Positive outcome of preceding monetary policy stance,
and of structural and fiscal policies can be seen on
unemployment rate
MOFED view:
 monetary policy continue to be accommodative
 KRR be kept at its current level

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