Mauritius under pressure to hike interest rates

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“The Monetary Policy Committee in Mauritius is very interesting. It’s made up from some government officials and Central Bank officials, so you do find sometimes they do differ on how to go about with monetary policy going forward,” ABSA Capital Africa strategist Ridle Marcus told CNBC Africa.

“We’ve seen a trend over the past year where, specifically last year, at a time where they were actually cutting interest rates in June by 25 basis points, Governor Bheenick himself was actually hoping for interest rates to be increased. So it’s nothing new when they differ, it’s obviously healthy debate.”

According to recent reports, Mauritius Central Bank governor Rundheersing Bheenick has begun to consider raising the key repo rate as a means of preventing capital flight, which has so far been spurred on by struggling emerging markets.

The island however has so far kept the rate at the same level.

Marcus added that some have however felt that the island’s economic progress of the island has been good, with enough subdued inflationary pressures to warrant hiking rates.

Others nevertheless felt that a hike could potentially damage the growth, and that now wouldn’t be perfect timing for a rate hike.

Turkey, India and South Africa recently upped rates last week, heaping pressure on other regions to follow suit.

“Our feeling is that economic growth is likely to pick up in 2014. On the back of that, with that confidence coming through, and if inflationary pressures continue to increase, there may be scope to hike policy rates towards the middle of the year,” said Marcus.

Interest rate hikes have been traditionally used to curbing capital outflow, but depending on the timing, it can do more damage than good for the consumer and the economy.

“There have been concerns about low savings rate as well, so there are a number of factors that could potentially be at whole in the eventual decisions. [it’s not certain] how much capital is likely to leave Mauritius, but certainly it is a problem for some other African countries, where a lot of foreign capital is being held,” Marcus explained.

“For Mauritius, I don’t think that’s such a great danger, but certainly we are looking for a possible hike towards the middle of the year because we do expect inflation to go above five per cent.”