Mauritius

Mauritius initially pegged its currency to sterling and then to the SDR, within a relatively developed financial system, but a switch of the peg to a currency basket in 1983 marked the start of a long period of monetary and financial reforms under which monetary policy moved closer to, but did not yet embark upon, formal inflation targeting.

YearsTargets and attainmentClassification
1974-82exchange rate fixed initially to sterling, then from January 1976 to SDR; significant financial system, with one large locally-owned, one state-owned and five foreign-owned commercial banks, also development and cooperative banks, call money market, treasury bills and government bonds (most held by banks, but growing share by National Pension Fund and other nonbanks); additional banks set up later; central bank uses mainly direct monetary instruments including liquidity ratio and credit controls; excessive fiscal expansion from ‘sugar boom’ of 1974-5 leads eventually to large devaluations 1979 and 1981augmented exchange rate fix AERF
1983-2017anchor changed from SDR to undisclosed trade-weighted basket 1983, followed by gradual depreciation; from early 1980s monetary policy focused on stabilising balance of payments and inflation, making more active use of interest rates, now liberalised and positive in real terms and used to support credit controls where authorities try out more flexible arrangements, while banks have excess liquidity; offshore banking started 1989; deficit finance provided by nonbanks is erratic, e.g. high late 1980s but very low first half of 1990s; from 1991 weekly issues of central bank bills, rise in secondary trading of bills, abolition of ceilings on bank credit; 1994 forex market liberalised, with new interbank exchange market; some repo operations from 1996, but interbank market remains thin; 1996 informal and unannounced inflation target adopted by central bank, pursued via reserve money, but exchange rate remains important concern, institutional basis for formal inflation targeting is weak, and monetary transmission mechanism is unclear and slow; undisclosed inflation targets reported in IMF sources for 1996/97 to 2004/05 attained; 1999 reserve money downgraded, new Lombard rate at which commercial banks can borrow overnight from central bank; increasing emphasis on treasury bill auction sales with resulting interest rates as key indicator of monetary policy; central bank has more transparency but limited autonomy; strong spike in inflation mid-2006 to late 2008 reflecting domestic policy issues as well as world price movements in GFC; 2007 monetary policy committee set up and repo rate replaces Lombard rate as policy rate, but under conditions of excess liquidity interest rate corridor does not function well, and interbank rates are consistently below repo rate; talk of move to formal inflation targeting; efforts to reduce excess liquidity by reserve requirements rises and from 2015 by bond and bill sales; from 2010 actual and expected inflation mostly in lower single digitsloosely structured discretion LSD

Selected IMF references: RED 1973 pp38-40, 47-51; SR 1975 pp8-11; RED 1977 pp27-8, 40; RED 1978 p22; SR 1979 pp7-8; RED 1981 pp27-9; RED 1983 pp41, 45-9, 63; SR 1983 pp9, 19; RED 1984 pp50-2; RED 1985 pp53-5, 73; RED 1989 pp37-8, 41-5, 56; RED 1994 pp55-9; SR 1994 pp10-11; BPSA 1995 pp43-6; SR 1995 pp15, 17; REDSI 1997 p35; SR 1997 pp13-15; SR 1999 pp1-13; SR 2001 pp7, 17-18; SISA 2002 pp29, 35; SR 2002 p15; SR 2003 pp20-1; SISA 2004 pp41-5, 51-2; SISA 2005 pp19-21, 25-7; SR 2005 pp16-17; SR 2008 pp7-8, 12-13; SR 2009 pp6, 15-17; SR 2014 pp10-12; SR 2015 pp18-19; SI 2017 pp14-24.

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