Mauritius Hikes Rate to 4.5% in First Meeting Under New Governor

In a significant move aimed at stabilizing the rupee and curbing inflation, the Bank of Mauritius (BoM) has raised its key repo rate by 0.75 percentage points to 4.5% in its first meeting under the new governor, Rama Sithanen. The decision, announced on February 4, 2025, reflects the central bank's commitment to maintaining price stability and supporting economic growth in the face of external challenges.

The increase in the key repo rate comes amidst a backdrop of global economic uncertainty, with the Euro Area GDP growth revised lower in Q2 2025 and the DAX set to lose around 2.5% on the week. Additionally, Italian shares have declined further, headed for over 2.5% weekly loss. The BoM's decision to hike rates is a proactive measure to contain inflationary pressures and maintain the stability of the Mauritian economy.

The new governor, Rama Sithanen, has made it a priority to address the depreciation of the rupee and its impact on inflation and purchasing power. In an interview with Défi Plus, Sithanen emphasized the need to stop the depreciation of the rupee to control inflation and improve citizens' purchasing power. The appointment of Sithanen, who previously served as Minister of Finance, is seen as a strategic move to revitalize the rupee and implement a new monetary philosophy.

The rate hike is expected to have a positive impact on the inflation outlook for Mauritius in both the short and medium term. The higher borrowing costs will discourage borrowing and encourage savings, while the higher interest rates will slow down economic activity and help to bring inflation down to the target range of 2-5% in the medium term.

The new monetary policy framework introduced by the BoM on January 16, 2023, is expected to have an impact on the foreign exchange market and the value of the Mauritian rupee. The framework aims to enhance the monetary policy transmission mechanism and strengthen the effectiveness of monetary policy. The adoption of a flexible inflation targeting regime, with headline inflation set within a range of 2-5% and the aim of achieving the mid-point of 3.5% over the medium term, can help anchor inflation expectations and reduce uncertainty in the foreign exchange market.

In conclusion, the Bank of Mauritius' decision to hike the key repo rate to 4.5% in its first meeting under the new governor, Rama Sithanen, is a proactive measure to maintain price stability and support economic growth in the face of external challenges. The rate hike is expected to have a positive impact on the inflation outlook for Mauritius and contribute to the stability of the Mauritian economy. The new monetary policy framework, with its focus on inflation targeting and exchange rate management, is expected to further strengthen the value of the Mauritian rupee in the foreign exchange market.