The Bank of Mauritius will keep its policy interbank rate at 1.85 percent at its August monetary policy committee meeting, leaving it unchanged for the fourth consecutive time, according to Fitch Solutions.
Given the increase in inflation from 0.2 percent year-on-year in April 2021 to 5.9 percent in June 2021, this makes it highly unlikely for a rate cut. This as a result of increase in food prices, depreciation of the Mauritian rupee, as well as strong base effects coming off low inflation of 1.7 percent in June 2020.
According to Fitch’s analysis, inflation is expected to accelerate in H2 2021 as food prices remain elevated, and easing of lockdown restrictions drives an increase in consumer activity. As such, this will increase demand pull inflationary pressures and prevent the MPC from cutting the rate in the coming quarters, Fitch Solutions indicates.
Furthermore, the Bank of Mauritius will continue to hold its policy interbank rate at 1.85 percent in 2022 as a further strengthening of the rupee will ease the pace of inflation. And Fitch Solutions forecast this to decelerate from an average of 3.5% in 2021 to 3.0% in 2022.
Fitch Solutions believes that price growth will inch up slightly, after the 5.9 percent year-on-year increase in June 2021. According to Fitch Solutions, the June figure reflects base effects coming off of low inflation in June 2020 and an increase in imported inflation resulting from a 5.0 percent fall in the exchange rate during June 2021.
Recent Policy rate actions by some Central Bank’s in the region
Meanwhile, some Central Banks have kept similar stance on their policy rates in the previous week include Ghana, Kenya and Nigeria.
With regards to Ghana, the Central Bank stayed the policy rate at 13.5 percent at its July monetary policy committee (MPC) meeting, following a cut of 100 basis points (bps) in May 2021. The decision to hold the policy rate reflected the BoG’s belief that “risks to inflation and growth were broadly balanced.”
Fitch Solutions beliefs that inflation will inch up in H2 2021 on the back of growing demand-side pressures. This follows a trend of decelerating inflation in H121 (from 9.9% y-o-y in January to 7.5% in May). And forecasts that annual inflation will average 9.3 percent in 2021, compared to 9.9 percent in 2020.
For Kenya, the Central Bank again held its policy rate at 7 percent for the ninth consecutive time, after cutting it by a cumulative 125 basis points (bps) in March and April 2020. This reflects the CBK’s view that inflation expectations “remained well anchored” despite rising price pressures (i.e. from 4.2% year-on-year in September 2020 to 5.9% year-on-year in May 2021).
Also, for Nigeria, the Central Bank of Nigeria kept the key policy rate at 11.5 percent for the fifth consecutive time at its July meeting. The decision reflected balanced inflation and growth risks, the MPC highlighted.
Whilst GDP growth remains below trend, the committee noted that an improvement in the Purchasing Managers Index (PMI) throughout H1 2021 has created confidence that output will show further improvement over the coming months. Therefore, this outlook has discouraged monetary loosening, the Bank noted.
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