OVERVIEW

As expected, net foreign assets of the banking system went down by Rs432 million or by 1.7 per cent, from Rs25,183 million at the end of February 2000 to Rs24,751 million at the end of March 2000. Net foreign assets of Bank of Mauritius declined by Rs341 million or by 1.8 per cent, from Rs18,555 million to Rs18,214 million. Net foreign assets of commercial banks dropped by Rs91 million or by 1.4 per cent, from Rs6,628 million to Rs6,537 million.

Domestic credit expanded by Rs1,455 million or by 1.8 per cent, from Rs81,666 million at the end of February 2000 to Rs83,121 million at the end of March 2000.

Net credit to Government rose by Rs980 million or by 5.7 per cent, from Rs17,246 million at the end of February 2000 to Rs18,226 million at the end of March 2000. Net credit to Government from Bank of Mauritius increased by Rs485 million, from Rs1,813 million to Rs2,298 million. Net credit to Government from commercial banks went up by Rs497 million, from Rs15,432 million to Rs15,929 million.

Credit to the private sector from commercial banks rose by Rs489 million or by 0.8 per cent, from Rs63,648 million at the end of February 2000 to Rs64,137 million at the end of March 2000. Net additional credit was allocated during the month to "Financial Institutions" (Rs294 million), "Development Certificate Holders" (Rs144 million), "Hotels" (Rs133 million) and by way of shares and debentures" (Rs156 million).

Reserve money increased by Rs546 million or by 5.7 per cent, from Rs9,655 million at the end of February 2000 to Rs10,201 million at the end of March 2000.

On the international foreign exchange market, the US dollar, on an average basis, depreciated against the Japanese yen and Pound sterling but appreciated vis-à-vis the Euro during April 2000. Against a backdrop of falling US share prices on fears that the Fed could hike interest rates more aggressively in the wake of strong US economic data, the US dollar remained, on average, well supported vis-à-vis the major European currencies as capital flows continued to favour the US currency.

The Japanese yen strengthened against the US dollar on the back of growing expectations that economic recovery in Japan was gathering momentum. But the yen gains were limited on fears of dollar-buying intervention by the Bank of Japan. The bullish sentiment towards the yen was reinforced by market expectations that the Bank of Japan could depart from its 14-month-old ultra loose monetary policy. Thereafter, towards the end of the month, the yen retained a weak tone on the Bank of Japan Policy Board’s decision to leave interest rates unchanged.

During the month, the Euro remained under pressure against the US dollar, undermined by negative market sentiment despite upbeat euro zone economic data. The Euro, which started the month on a quiet tone hovering around US$0.95, weakened towards the end of the month to hit a low of US$0.9106 on 27 April. Expectations that the G7 meeting might take a tougher stance on the soft Euro, weaker US share prices as well as repeated verbal interventions by euro zone finance ministers and central bank governors initially provided some support to the single currency. However, the Euro suffered a setback as the ECB left its refinancing rate unchanged at its meeting on 13 April. In addition, a number of factors including massive capital flows out of the euro zone by Japanese investors and weaker-than-expected German business sentiments weighed on the single currency. Against this backdrop, the 25 basis point hike in the ECB’s refinancing rate at its meeting on 27 April failed to have any impact on the Euro as the market was also expecting similar interest rate hike in the US, Britain and, increasingly, Japan.

The Pound sterling appreciated vis-à-vis the US dollar during the month. Following the Bank of England decision to keep interest rates unchanged at 6.00 per cent on April 6, market expectations for a rise in the repo rate shifted to the May meeting of the Monetary Policy Committee, thereby providing some support to the Pound sterling. Strong data on British average earnings released in April also pointed towards higher interest rates.

Direct sales of foreign currencies by the Mauritius Sugar Syndicate (MSS) to the banking sector during April 2000 amounted to an equivalent of US$1.1 million. The Bank of Mauritius intervened in the interbank foreign exchange market selling a total amount of US$12.0 million.

Reflecting international trends and local market conditions, the rupee, on average, depreciated between March 2000 and April 2000 against the Japanese yen, Pound sterling and US dollar by 1.13 per cent, 0.19 per cent and 0.04 per cent, respectively, but appreciated vis-à-vis the Euro by 1.91 per cent. The rupee edged down against the US dollar, trading at an average rate of Rs25.803 in April 2000 as against an average rate of Rs25.792 in March 2000. The rupee lost ground vis-à-vis the Japanese yen, to trade at an average rate of Rs24.529 per 100 Yen in April 2000 as against an average rate of Rs24.251 per 100 Yen in March 2000. The rupee weakened vis-à-vis the Pound sterling, trading at an average rate of Rs40.807 in April 2000 as against Rs40.730 in the preceding month. The weakness of the Euro on market resulted in the European currency being traded at an average rate of Rs24.437 in April 2000 compared with an average rate of Rs24.903 in March 2000.

On an average basis, between January 1999 and April 2000, the Philippines peso, Thailand baht, Mauritian rupee, Singapore dollar, Hong Kong dollar, Taiwan dollar, Korean won and Indonesian rupiah, appreciated against the Euro by 14.0 per cent, 18.0 per cent, 18.6 per cent, 20.4 per cent, 21.8 per cent, 29.5 per cent, 29.5 per cent and 35.4 per cent, respectively.

Reflecting partly its intervention in the foreign exchange market, the foreign exchange reserves of the Bank of Mauritius decreased by Rs486 million, from Rs18,214 million at the end of March 2000 to Rs17,728 million at the end of April 2000.

Net international reserves of the country, made up of the net foreign assets of the banking system, the foreign assets of the Government and the country’s Reserve Position in the International Monetary Fund (IMF), decreased by Rs429 million, from Rs25,680 million at the end of February 2000 to Rs25,251 million at the end of March 2000. Based on the value of the import bill for calendar year 1999, excluding the purchase of aircraft, the end-March 2000 level of net international reserves of the country represented 24.0 weeks of imports, down from 24.4 weeks at the end of February 2000.