Mauritius holds rate, upside inflation risks vs. growth risks

     The central bank of Mauritius kept its benchmark repo rate steady at 4.90 percent and said the upside risks to inflation are persisting while downside risks from weak and uncertain economic conditions in the country's main export markets continue to weigh on the domestic growth outlook.
    The Bank of Mauritius said its Monetary Policy Committee kept the rate steady in light of the "continued uncertainty on the global growth outlook," but some committee members had "expressed strong concerns about the deteriorating inflaiton outlook" and "emphasised the need to normalise rates to encourage savings while containing speculative activities in some sectors."
    "The MPC maintains strong vigilance in monitoring economic and financial developments and stands ready to meet in between its regular meetings, if the need arises," the bank said.
    Mauritius' inflation rate rose to 3.6 percent in February from January's 2.9 percent, the bank said, noting the persistent upside risks to elevated global commodity prices, the impact of a recent PRB award to the public sector, a rise in retail petroleum prices and the expected second-round effect of these, as well as the projected rise in administered prices.

    Based on no rate changes, the bank's staff forecast a headline inflation forecast of 4.7-4.9 percent by December 2013 compared with an expectations survey from last month that put the annual headline inflation rate at 5.0 percent in December and 5.2 percent for December 2014.
    The bank's policy committee took note of fragile economic conditions among the developed economies of export interest to Mauritius while recovery is more robust among emerging economies.
    Mauritius' third quarter Gross Domestic Product rose 1.3 percent from the second quarter for annual growth of 3.9 percent, up from the second quarter's 3.2 percent and the first quarter's 3.0 percent.
    The central bank said the output gap had narrowed a little but remained negative, but the underlying economic momentum is expected to remain positive.
    The bank's staff forecasts 2013 economic growth of 3.4-3.9 percent, up from projected 2012 growth of 3.3 percent. In 2011 Mauritius' Gross Domestic Product rose a real 4.1 percent, the same as in 2010.

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