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    Home » The Bank of Mauritius is replacing the 16-year-old monetary policy framework
    Economy

    The Bank of Mauritius is replacing the 16-year-old monetary policy framework

    January 12, 2023No Comments2 Mins Read
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    ​​The Bank of Mauritius is introducing a new monetary policy framework effective 16 January 2023. The new framework supersedes the existing one introduced in December 2006.

    Following the recommendations of the International Monetary Fund (IMF), the Bank of Mauritius will be introducing a new monetary policy framework. “The monetary policy framework needs to be modernized, and the credibility and independence of the central bank to be safeguarded.” Staff recommends that the new monetary policy framework be rolled out soon to support policy effectiveness. Consistent with the inflation targeting framework, the Bank of Mauritius’ (BOM’s) FX intervention strategy should aim to smooth volatility while generally allowing for exchange rate flexibility, facilitating macroeconomic adjustment, recommended the IMF in its 2022 Article IV report on Mauritius.

    According to the Bank of Mauritius, the new Monetary Policy Framework aims to improve the monetary policy transmission mechanism and strengthen the effectiveness of monetary policy. It is a flexible inflation targeting regime in which headline inflation has been set within a range of 2-5 percent with the goal of reaching the mid-point of 3.5% over the medium term, with the concurrence of the Finance Minister. 

    The existing Key Repo Rate is being replaced by the Key Rate as the policy rate to be determined by the Monetary Policy Committee under the new framework. The Key Rate will be set at the same rate as the Key Repo Rate, i.e., 4.50 percent. 

    The implementation process of the new framework entails changes at the operational level, notably a review of monetary policy instruments to be used for effective management of liquidity conditions.

    The revamping of the Monetary Policy Framework is one of many IMF recommendations to increase the bank’s leeway. 

    The IMF has also requested that the central bank be recapitalized and that it withdraw from its subsidiary, the Rs 80 billion Mauritius Investment Corporation.  “The government needs to recapitalize the BOM per existing legislation for the BOM to accommodate the monetary policy costs. To strengthen the central bank’s operational independence and financial position, the reform of the BOM law should prohibit central bank’s transfers to the government and quasi-fiscal financing. Relinquishing the BOM ownership of the MIC would also help in this regard,”  highlighted the Bretton Woods institution.

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