• Home
• /
• Business

Mauritius cenbank hikes reserve ratio to 6.0 pct

PORT LOUIS - The Mauritius central bank has raised its cash reserve ratio to 6.0 percent from 4.0 percent, the bank's governor said on Friday, warning that inflationary sentiment should not be permitted to take hold.

Headline inflation has been falling steadily from a peak of 10.7 percent last June to a low of 8.8 percent in May and June this year. But in July, the figure rose to 9.1 percent.

"The bank has decided to raise the cash reserve ratio from 4.0 percent to 6.0 percent," Governor Rundheersing Bheenick said in a speech late on Friday.

The cash reserve ratio is the minimum amount that a bank must hold as a proportion of its deposits. Increasing the ratio inhibits a bank's ability to lend cash, and therefore can be used as a policy tool to affect the level of monetary supply.

"This tool is being resorted to by several central banks around the world in their own fight against inflation, often in conjunction with steep rate hikes," Bheenick said.

Analysts have warned of inflationary pressures in Mauritius from rising food and oil prices, including a 20 percent jump in July for the state controlled price of fuel, plus a generous civil service pay rise, a depreciating Mauritius rupee MUR, interest rate cuts and excess liquidity.

"Sustained monetary and credit expansion have compounded these pressures," Bheenick said in a speech at a function to rebrand a Mauritius bank.

"Broad money and private sector credit have been accelerating, almost doubling their rate of growth."

Credit to the private sector rose 22 percent during the fiscal year to June 2008, against 12.0 percent the year before, he said.

Broad money supply expanded by a hefty 17 percent against an increase of 8.6 percent in the fiscal year to June 2007, he added.

"We cannot allow an inflationary psychology to take hold," Bheenick said.

In July, the central bank raised its benchmark interest rate to 8.25 basis points, following three cuts earlier in the year.