Mauritius needs to clarify its monetary policy to increase policy coherence, the International Monetary Fund said on Saturday. The IMF said in a statement that the primary objective of the central bank was to maintain price stability and promote "orderly and balanced" economic development.
"There appears to be no consensus on the definition of price stability and on the role of the nominal exchange rate in the conduct of monetary policy," the fund said. It said the perceived multiplicity of objectives can risk overburdening monetary policy, spur policy inconsistencies, and potentially undermine the central bank's ability to anchor inflation expectations.
"Announcing a medium-term inflation objective will prove instrumental in the implementation of a new policy framework," the IMF said.
"An inflation objective of about 3 percent could serve as the foundation for the BOM's (Bank of Mauritius's) policy actions and communication."
The Indian Ocean island nation is trying to diversify its economy away from sugar, textiles and tourism into offshore banking, business outsourcing, luxury real estate and medical tourism. The country's Key Repo Rate (KRR) was held steady at 3.50 percent last month. The IMF said it expected headline inflation to ease in the second half of 2017 and finish the year around 4.0 percent.
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