POLICY CHANGES

1. In December 1999, the Bank of Mauritius established the Lombard Facility to meet temporary liquidity shortfalls of commercial banks and announced that changes in the Lombard Rate will be used as a signalling mechanism for the Bank's monetary policy stance.

The Bank of Mauritius reduced the Lombard Rate from 14 per cent to 13 per cent with effect from 22 March 2000 against a background of a steadily declining rate of domestic inflation from 8.1 per cent in August 1999 to 6.3 per cent in February 2000. Lowering of the Lombard Rate is expected to bring about a fall in banks' actual lending rates.

2. The Bank of Mauritius made available to commercial banks a rediscount facility for EPZ Euro and Euro-linked export bills with effect from 3 March 2000. This measure, which is intended to last until June 2000, is expected to offset some of the adverse impact of the movement in the exchange rate of the Euro on EPZ exports to the European Union.

In line with the Bank's decision to bring down the Lombard Rate, the Bank's special rediscount rate on Euro and Euro-linked EPZ export bills was reduced from 7.5 per cent to 6.5 per cent per annum, with commercial banks discounting those bills at 8.5 per cent instead of 9.5 per cent per annum.

3. Following the reduction in the Lombard Rate, commercial banks announced a lowering of their prime lending rates by 1 percentage point, from a range of 12.00-13.00 per cent to 11.00-12.00 per cent. They also reduced their rates on savings deposits from 9.00 per cent to a range of 8.00-8.50 per cent.