The Bank of Mauritius (BOM) last cut its rate in August 2019 in what it said was a pre-emptive move and although it maintained its policy rate in November and the 2020 growth forecast, it cut its 2019 growth estimate due to a less favorable outlook and rising downside risks.
Today BOM slashed its estimate for 2020 growth to 2.6 to 2.8 percent from November's forecast of 4.0 percent, noting this was staff's estimate "at this stage," "considering the impact of the virus.
"The MPC (monetary policy committee) considered that an accommodative monetary policy was deemed appropriate to support domestic economic activity," BOM said.
In the third quarter of 2019 Mauritius' gross domestic product slowed to an annual rate of 3.1 percent from 3.5 percent.
"The uncertainty associated with the outbreak of COVID-19 is also likely to influence consumer and business confidence, which can potentially dent domestic spending and investment," BOM said, adding downside risks to global growth have risen due to disruptions in global trade and travel activity, which will also lead to subdued global inflationary pressures.
Tourism accounts for some 15 percent of Mauritius' economy.
Since December 2011 BOM has cut its rate six times and by a total of 2.65 percentage points, and in late February the government replaced Yandraduth Googoolye as governor with Harvesh Kumar Seegolam, the bank's eight governor since it was established in 1967, along with the first deputy governor.
Today's policy decision by the bank's newly-constituted monetary policy committee was unanimous, and it confirmed it was ready to meet in between regular meetings if needed.
Inflation in Mauritius has risen in the last three months to 2.22 percent in February from 2.0 percent in January for the highest rate since November 2018.
Bank staff projected inflation of around 1.5 percent this year.
Mauritius' rupee has been falling since February 2018 and fell further today to 37.3 to the U.S. dollar, down 2.4 percent this year and down 9.1 since the start of 2018.
The Bank of Mauritius released the following statement:
"The Monetary Policy Committee (MPC) of the Bank of Mauritius (Bank) unanimously voted to reduce the Key Repo Rate (KRR) by 50 basis points to 2.85 per cent per annum at its meeting today.
The MPC assessed latest international economic and financial developments and noted that the global economy is subject to heightened uncertainty and global financial markets are extremely volatile. The Committee considered that the OECD lowered its assessment of global growth for 2020 by half a percentage point to 2.4 per cent amid the COVID-19 outbreak. Downside risks to global growth have increased due to disruptions in global trade and travel activity. Global inflationary pressures are expected to remain subdued.
The COVID-19 outbreak is expected to have a significant impact on the domestic economy. The uncertainty associated with the outbreak of COVID-19 is also likely to influence consumer and business confidence, which can potentially dent domestic spending and investment. Bank staff estimates, at this stage, that considering the impact of COVID-19, real GDP growth rate would be between 2.6 to 2.8 per cent for 2020.
Both headline and core inflation have remained low. Bank staff is projecting headline inflation at about 1.5 per cent in 2020.
The MPC considered that an accommodative monetary policy was deemed appropriate to support domestic economic activity.
The next MPC meeting is scheduled on Wednesday 06 May 2020. The MPC stands ready to meet in between its regular meetings, if the need arises.
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