The Mauritian rupee experienced a depreciation of 4.6% from December 2022 to the end of June 2023, as reported by the Mauritius Exchange Rate Index (MERI). Analyzing the depreciation over a broader time frame, the rupee declined over 3% compared to June 2022. Furthermore, it experienced a substantial depreciation of 12% compared to June 2021 and a staggering 24.8% compared to June 2019.
The MERI, a comprehensive measure reflecting the rupee’s movements against the currencies of its key trading partners, revealed this decline, indicating the challenges faced by the island nation’s currency.
The MERI consists of two indices: MERI1 and MERI2. While MERI1 focuses on the currency distribution of merchandise trade, MERI2 encompasses both merchandise trade and tourism earnings. A rise in the index value signals a depreciation of the rupee.
Comparing the figures, both MERI1 and MERI2 demonstrated an upward trend during the period. MERI1 climbed from 121.417 points to 126.965 points, while MERI2 increased from 119.890 points to 125.418 points.
Addressing concerns over the rupee’s depreciation, Finance Minister Renganaden Padayachy explained the factors influencing the currency’s decline during budget debates. He shed light on the issue, saying, “I will take the time to respond to the allegations made against the authorities regarding the depreciation of the rupee. In this august Assembly, the opposition has argued that in island countries such as the Maldives, the exchange rate has already returned to its pre-pandemic level. The situation is a bit less simplistic than the opposition would like, as they excel in demagoguery and distorting information. The fact is Mauritius, as an international financial center, has had a floating exchange rate regime since 1994, which is not the case for the Maldives. The Maldives, indeed, have a fixed exchange rate regime, with the Rufiyaa pegged to the U.S. dollar. Mechanically, there has been no depreciation of the Maldives’ local currency against the U.S. dollar since the start of the pandemic.”
Minister Padayachy emphasized that under a floating exchange rate regime, like the one in Mauritius, the value of the rupee against reference currencies reflects the fluctuations of supply and demand, influenced by various factors. He stated, “One of these factors is the significant decrease in foreign currency earnings we experienced due to the closure of borders in 2020 and 2021.” He further noted that the tourism sector, a significant contributor to foreign currency inflows, remained closed for over 18 months, resulting in a drastic decline of approximately $2 billion in foreign currency inflows between 2020 and 2021. Additionally, he highlighted a deficit of roughly $400 million in goods exports and a shortfall of around $200 million in foreign direct investment (FDI) inflows. The scarcity of foreign currencies in the local market exerted significant pressure on the rupee, and the depreciation would have been much more substantial if the Bank of Mauritius had not intervened massively.
The Bank of Mauritius has sold approximately $3.8 billion on the local foreign exchange market since March 2020 to curb excessive exchange rate volatility, Minister Padayachy reiterated.