Independence of Central Bank and Monetary Policy Committee re-established, says PM

In reply to a Private Notice Question in the National Assembly, today, with regard to the increase in Key Rate by 25 basis points from 4.50 per cent to 4.75 per cent per annum, the Prime Minister, Dr Navinchandra Ramgoolam, stated that the measure is intended to ease inflationary pressures, support the Mauritian rupee and prevent runaway inflation.

He recalled that Government has restored the independence of the central bank and the Monetary Policy Committee (MPC), allowing the Bank of Mauritius to fulfil its primary mandate of maintaining price stability while promoting orderly and balanced economic development. The MPC, which met on 20 May 2026, unanimously agreed to raise the Key Rate by 25 basis points, bringing it from 4.50 per cent to 4.75 per cent per annum, Dr Ramgoolam said.

With regard to the decision to raise the Key Rate by 25 points, the Prime Minister pointed that the MPC considered the macroeconomic implications arising from the recent escalation of geopolitical tensions and the US-Iran conflict, particularly for small and highly open economies such as Mauritius. According to him, the Committee assessed the inflationary risks linked to rising international fuel prices, higher freight and transportation costs, and exchange rate pressures, while also taking into account the potential impact on the domestic economic outlook, he stated.

The Prime Minister further pointed out that although headline inflation remained unchanged at 4.2 per cent between March and April 2026, year-on-year inflation increased significantly to 3.6 per cent in April, compared to 2.7 per cent in March. This rise was mainly attributed to increasing energy prices and certain second-round effects, he said.

The Prime Minister also warned against underestimating the harmful effects of inflation on an economy, referring to past experiences in countries such as Argentina and Zimbabwe, where inflation exceeded 1,000 per cent per month.

Regarding the impact of the Key Rate increase on households, Dr Ramgoolam explained that the effects would depend on whether households are net borrowers or net savers.

The Prime Minister indicated that, as at the end of March 2026, households held rupee-denominated loans amounting to Rs 202.2 billion, with a weighted average interest rate of 6.8 per cent. Based on these figures, a household with a loan of Rs 500,000 would see its annual interest repayments increase by approximately Rs 1,250 if banks fully pass on the 25-basis point increase to customers. A similar increase in borrowing costs would also apply to corporates with outstanding loans.

26 May 2026

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Topics: Finance