NAIROBI: Mauritius needs to raise interest rates in order to meet its year-end inflation target of 4 percent and begin halting a decade-long decline in saving levels, its central bank chief said on Friday.
Monetary policy had fallen "hopelessly behind the curve", said Governor Rundheersing Bheenick, who in recent weeks has clashed with the finance minister over interest rates levels.
Bheenick told Reuters he was worried by the jump in consumer prices over the past three months and that the import-dependent Indian Ocean island could expect increased external pressures with inflation picking up in developed economies.
"We are a very open economy, so we should be able to take measures to try to contain the knock-on effects on domestic inflation," Bheenick said in a telephone interview.
Bheenick forecast the year-on-year inflation rate would slow to around 4 percent by December from 5.6 percent in February if the bank's benchmark repo rate was lifted 50 basis points from its current level of 4.65 percent.
Bheenick would not say where inflation would end the year on a no policy change basis, but said central bank data showed a range of 3.5-6.5 percent based on different policy outcomes.
Higher key lending rate would also encourage commercial banks to raise their own rates on deposits, which Bheenick said now sat some 200 basis points below inflation.
He added: "As for now, the thing to take into account is that we are hopelessly behind the curve. Real rates of return are negative and this is where you do not want to be."
Comments
Comments are closed for this article.