OVERVIEW

The rate of inflation for calendar year 2000 declined to 4.2 per cent from 6.9 per cent in 1999. The rate of inflation in 2000 was also the lowest rate recorded since 1987.

Net foreign assets of the banking system went up for the fourth consecutive month, rising by Rs1,305 million or by 4.1 per cent, from Rs31,723 million at the end of November 2000 to Rs33,028 million at the end of December 2000. Net foreign assets of Bank of Mauritius rose by Rs445 million or by 1.8 per cent, from Rs24,395 million to Rs24,840 million. Net foreign assets of commercial banks increased by Rs860 million or by 11.7 per cent, from Rs7,328 million to Rs8,188 million.

Domestic credit expanded by Rs1,468 million or by 1.8 per cent, from Rs83,373 million at the end of November 2000 to Rs84,841 million at the end of December 2000.

Net credit to Government rose by Rs976 million or by 7.7 per cent, from Rs12,655 million at the end of November 2000 to Rs13,631 million at the end of December 2000. Net credit to Government from Bank of Mauritius increased by Rs730 million. Net credit to Government from commercial banks edged up by Rs246 million or by 1.7 per cent, from Rs14,520 million to Rs14,766 million.

Credit to the private sector from commercial banks rose by Rs504 million or by 0.7 per cent, from Rs70,066 million at the end of November 2000 to Rs70,570 million at the end of December 2000. Additional credit was extended to "Sugar Industry" (Rs452 million) and "Manufacturing" sector (Rs135 million).

Money supply M2 increased by Rs1,174 million or by 1.3 per cent, from Rs93,713 million at the end of November 2000 to Rs94,887 million at the end of December 2000. Narrow money supply M1, one of the components of M2, went up by Rs1,931 million or by 17.0 per cent, from Rs11,368 million to Rs13,299 million. Quasi-money, the other component of M2, dropped by Rs757 million or by 0.9 per cent, from Rs82,345 million to Rs81,588 million.

The level of reserve money rose by Rs1,148 million or by 10.8 per cent, from Rs10,617 million at the end of November 2000 to Rs11,765 million at the end of December 2000.

Based on liquidity conditions in the market, the Bank carried out four variable-yield and two fixed-yield reverse repo transactions with commercial banks in January 2001 for periods varying from 1 to 4 days. The highest yield accepted for the variable-yield reverse repo transactions was 6.50 per cent. The two fixed-yield reverse repo transactions were conducted at 7.00 per cent.

Between end-June 2000 and end-December 2000, the number of Automated Teller Machines (ATMs) in operation in Mauritius increased by 10 from 221 to 231 and the number of cardholders (that is to say the number of cards in circulation) went up by 36,792 from 610,849 to 647,641. The number of transactions involving the use of credit cards, debit cards, ATMs and Merchant Points of Sale increased from 1.416 million in June 2000 to 1.885 million in December 2000. The value of such transactions increased from Rs1,998 million to Rs3,364 million over that period. Outstanding advances on credit cards rose from Rs536 million to Rs598 million.

On the international foreign exchange market, during January 2001, the US dollar, on an average basis, depreciated against the euro and Pound sterling but appreciated vis-à-vis the Japanese yen. Outlook for the US economy in the wake of generally weak US economic data continued to dominate market activity throughout the month. On 3 January 2001, in a move that surprised financial markets, the US Federal Reserve, four weeks ahead of the year’s first scheduled FOMC meeting, lowered its federal funds rate by 50 basis points to 6.0 per cent and signalled that it might cut rates further if needed. On 25 January 2001, the Federal Reserve Chairman Alan Greenspan, in his much awaited testimony to the Senate Budget Committee, gave a downbeat view of the US economy citing a “very dramatic” economic slowdown to near zero growth. There was little doubt that interest rates in the US would be cut again and, as widely expected by financial markets, the Federal Reserve, for the second time in a month, cut its federal funds rate by another 50 basis points to 5.50 per cent at its FOMC meeting on 31 January 2001. In its accompanying statement, the Fed cited excessive weakness of the US economy and signalled that it stood ready to cut rates further, thereby confirming that the medium-term outlook for the US economy was not good.

Capitalising on the dollar weakness and as market attention shifted to the narrowing of US-euro zone interest rate differential, the euro, at the start of January, surged against the US dollar to trade at above the 95 cents level. However, the single currency, mainly on profit taking by investors, thereafter shed some of its gains vis-à-vis the dollar. Dealers pointed out that even though the euro was due for a correction after its rally, its bullish trend has not changed. At the close of the month, the euro was trading at around US$0.9264. The ECB at its bi-weekly governing council meeting on 5 and 18 January 2001 left its key refinancing rate unchanged at 4.75 per cent.

The Pound sterling, taking its cue mainly from the strength of the euro against the dollar, opened January 2001 at an intra-month high of US$1.5050 vis-à-vis the US currency. However, the release of weaker-than-expected UK economic data later during the month, reinforcing market view that there was sufficient weakness in the UK economy to allow for a rate cut in February 2001, weighed on the Pound. The Pound closed the month at around US$1.4615. The Bank of England at its MPC meeting on 11 January 2001 left its key repo rate unchanged at 6.0 per cent for the eleventh month running.

The Japanese yen tumbled reaching a 17-month low against the dollar amid lingering worries about Japan’s fragile economy which could be further damaged by the US economic slowdown. Remarks by the Japanese Finance Minister that the government would tolerate more yen losses in order to stimulate Japan’s heavily export-dependent economy also added pressure on the yen.

Direct sales of foreign currencies by the Mauritius Sugar Syndicate (MSS) to the banking sector during January 2001 amounted to an equivalent of US$17.4 million. The Bank of Mauritius did not intervene in the interbank foreign exchange market during January 2001.

Reflecting international trends and local market conditions, the rupee, on average, depreciated between December 2000 and January 2001 against the euro and Pound sterling by 4.9 per cent and 1.2 per cent, respectively. It, however, appreciated against the Japanese yen and US dollar by 4.4 per cent and 0.02 per cent, respectively. In the wake of the euro’s rebound on the international foreign exchange market during January 2001, the rupee weakened against the euro to trade at an average rate of Rs26.327 in January 2001 compared with an average rate of Rs25.106 in December 2000. The rupee lost ground against the Pound sterling to trade at an average rate of Rs41.441 in January 2001 as against an average rate of Rs40.935 in December 2000. The rupee, however, firmed up against the Japanese yen to trade at an average rate of Rs24.043 per 100 Yen in January 2001 from an average rate of Rs25.100 per 100 Yen in December 2000. The rupee also moved marginally higher vis-à-vis the US dollar, trading at an average rate of Rs28.027 in January 2001 compared with an average rate of Rs28.034 in December 2000.

On an average basis, between January 1999 and January 2001, the Thailand baht, Mauritian rupee, Indonesian rupiah, Korean won, Singapore dollar, Taiwan dollar and Hong Kong dollar appreciated against the euro by 4.7 per cent, 10.1 per cent, 12.0 per cent, 13.8 per cent, 19.3 per cent, 21.7 per cent and 22.5 per cent, respectively. The South African rand and Philippines peso, however, depreciated vis-à-vis the euro by 4.4 per cent and 7.4 per cent, respectively.

The foreign exchange reserves of the Bank of Mauritius decreased by Rs3,182 million, from Rs24,840 million at the end of December 2000 to Rs21,658 million at the end of January 2001, mainly on account of the repayment of the bridging loan raised in October 2000 for the repayment of the Floating Rate Note.

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), increased by Rs1,314 million, from Rs32,240 million at the end of November 2000 to Rs33,554 million at the end of December 2000. Based on the value of the import bill for fiscal year 1999-00, excluding the purchase of aircraft, the end-December 2000 level of net international reserves of the country represented 31.7 weeks of imports, up from 30.5 weeks at the end of November 2000.