OVERVIEW

The net foreign assets of the banking system declined by Rs509 million or by 2.3 per cent, from Rs22,087 million at the end of June 1999 to Rs21,578 million at the end of July 1999. Net foreign assets of Bank of Mauritius went down by Rs358 million, from Rs15,315 million at the end of June 1999 to Rs14,957 million at the end of July 1999, or by 2.3 per cent as against a rise of 1.5 per cent between end-May 1999 and end-June 1999. Net foreign assets of commercial banks declined by Rs151 million, from Rs6,772 million at the end of June 1999 to Rs6,621 million at the end of July 1999, or by 2.2 per cent, as compared to a rise of 6.9 percent recorded between end-May 1999 and end-June 1999.

Domestic credit expanded by Rs1,235 million, from Rs76,727 million at the end of June 1999 to Rs77,962 million at the end of July 1999, or by 1.6 per cent, in contrast to the 0.1 per cent drop registered between end-May 1999 and end-June 1999.

Net credit to Government from the banking system rose by Rs326 million, from Rs16,014 million at the end of June 1999 to Rs16,340 million at the end of July 1999, or by 2.0 per cent as compared to the fall of 5.4 per cent recorded between end-May 1999 and end-June 1999. Net credit to Government from Bank of Mauritius declined by Rs477 million or by 10.4 per cent, from Rs4,577 million at the end of June 1999 to Rs4,099 million at the end of July 1999. Between end-May 1999 and end-June 1999, it had increased by 12.5 per cent. Net credit to Government from commercial banks went up by Rs803 million, from Rs11,437 million at the end of June 1999 to Rs12,240 million at the end of July 1999, or by 7.0 per cent as compared to the decline of 11.1 per cent registered between end-May 1999 and end-June 1999.

Credit to the private sector from commercial banks went up by Rs922 million, from Rs60,106 million at the end of June 1999 to Rs61,028 million at the end of July 1999, or by 1.5 per cent, slightly higher than the rise of 1.4 per cent noted between end-May 1999 and end-June 1999. During the month under review, the increase in credit was directed mainly to "Investments in tax-free debentures" (Rs259 million), "Sugar Industry" (Rs230 million) and "Hotels" (Rs184 million).

After registering a huge increase of Rs1,214 million between end-May 1999 and end-June 1999, money supply M2 dropped marginally by Rs9 million, from Rs80,204 million at the end of June 1999 to Rs80,195 million at the end of July 1999. Quasi-money increased by Rs696 million, from Rs69,298 million at the end of June 1999 to Rs69,994 million at the end of July 1999, or by 1.0 per cent as against 1.5 per cent between end-May 1999 and end-June 1999. Narrow money supply M1 went down by Rs705 million, from Rs10,906 million at the end of June 1999 to Rs10,200 million at the end of July 1999, or by 6.5 per cent as compared to the rise of 1.6 per cent registered between end-May 1999 and end-June 1999.

Reserve money rose by Rs320 million, from Rs8,582 million at the end of June 1999 to Rs68,902 million at the end of July 1999, or by 3.7 per cent, lower than the increase of 12.3 per cent recorded between end-May 1999 and end-June 1999.

On the international foreign exchange market, the US dollar, largely influenced by movements on the US asset markets, weakened, on average, against all the major currencies during August 1999. The Federal Open Market Committee (FOMC), at its August 1999 meeting, tightened both the Federal funds rate and discount rate by 25 basis points to 5.25 percent and 4.75 per cent, respectively. The Federal Reserve is of the view that the interest rate hikes in June and August 1999 should markedly diminish the risk of inflationary pressures in the US. The yen, supported by investor enthusiasm for Japanese-denominated assets in the wake of growing optimism about Japan’s economic recovery, firmed up vis-à-vis the dollar to close August 1999 at a 5-month high of 109.51. The prolonged absence of intervention by the Japanese authorities on the foreign exchange market to stem the yen’s appreciation also benefited the Japanese currency. The Euro and Pound sterling both gained ground against the dollar, deriving support from the broadly weaker US currency. The release of supportive euro zone economic data, which confirmed the view of a recovery in that area, also gave a boost to the single currency. In early August 1999, the Bank of England Monetary Policy Committee left its repo rate unchanged at 5.0 per cent. In late August 1999, the European Central Bank (ECB) also left its key interest rate unchanged at 2.5 per cent.

The Bank of Mauritius sold through intervention on the interbank foreign exchange market an amount of US$6.7 million to commercial banks in August 1999. Direct sales of foreign currencies by the Mauritius Sugar Syndicate (MSS) to the banking sector, mainly in Euros, amounted to an equivalent of US$12.7 million during the same month.

Reflecting global trends and local market conditions, the rupee, on an average basis, depreciated between July 1999 and August 1999 against the Japanese yen, Euro and Pound sterling by 5.2 per cent, 2.4 per cent and 2.0 per cent, respectively, but, appreciated vis-à-vis the US dollar by 0.1 per cent. The rupee, which traded at an average rate of Rs21.306 per 100 yen in July 1999 reached Rs22.484 per 100 yen in August 1999. Between January 1999 and July 1999, the Euro has been maintaining a general downward movement against the rupee. However, from an average rate of Rs26.332 in July 1999, the Euro strengthened to trade at an average rate of Rs26.980 in August 1999. Against the Pound sterling, the rupee, which was trading at an average rate of Rs40.009 in July 1999, lost ground to trade at an average rate of Rs40.805 in August 1999. The rupee appreciated marginally against the US dollar, trading at an average rate of Rs25.420 in August 1999 compared with an average rate of Rs25.434 in the previous month.

The foreign exchange reserves of the Bank of Mauritius increased by 29 million, from Rs14,957 million at the end of July 1999 to Rs14,986 million at the end of August 1999.

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 Rs498 million, from Rs22,575 million at the end of June 1999 to Rs22,077 million at the end of July 1999. Based on the value of the import bill for calendar year 1998, the end-July 1999 level of net international reserves of the country represented 23.0 weeks of imports as compared to 23.6 weeks of imports at the end of June 1999.

Issue of Offshore Banking Licence to SBM Nedbank International Limited

The SBM Nedbank International Limited became the eleventh offshore bank in operation in Mauritius on 17 August 1999. SBM Nedbank International Limited is a 50:50 locally incorporated joint venture bank between State Bank of Mauritius Ltd and Nedcor Bank Limited, of South Africa. The new offshore bank will operate from 7 Floor, State Bank Tower, Port Louis.

Nedcor Bank Limited has foreign branches in Isle of Man and U.K. and representative offices in Taipei (Taiwan), Beijing (People's Republic of China) and New York (U.S.A.).