You recall that some months before the 2019-20 Budget, the BoM started intervening aggressively (even putting pressure on banks to align their rate quotations to BoM pre-determined rates.) in the forex market to depreciate the rupee such that, by June 2019 , the Special Reserve Fund (which derives its funds mainly from the net valuation gains on foreign exchange reserves) had shot up by some Rs 7 billion to reach Rs 20 billion. An amount of Rs 18 billion was then transferred from the Special Reserve Fund to the Budget of which Rs 7 billion was drawn for the early repayment of our external debt.
We had warned at that time that future replenishment of the Bank’s internal capital reserves (the SRF) will be done in the same manner - by more rupee depreciation.
Please note the following clauses of the amended Bank of Mauritius Act 2004:
(5) The Funds out of the Special Reserve Fund may be used, only and strictly, in the following order of priority —
(a) for the purpose of increasing the amount paid as capital of the Bank in accordance with section 10(4);
(b) by the Bank, in exceptional Board —
circumstances
(i) for monetary policy purposes;
and with the approval of the
(ii) for repayment of central government external debt obligations, provided that this is not likely to adversely affect the efficient discharge by the Bank of its functions under this Act.
(6) Notwithstanding subsection (5), the Board may, on account of the Covid-19 virus having a negative impact on the economy of Mauritius, approve such grant from the Special Reserve Fund to assist Government in its fiscal measures to stabilise the economy of Mauritius.
They are at it again ; yesterday itself , the Bank intervened on the domestic foreign exchange market and sold a total amount of USD25.0 million at the rate of Rs40.25/USD. Until now, the BoM has intervened to keep the dollar rate below Rs40. On 17/3/21, the USD selling rate at commercial banks rose by 35 cts to a record high of Rs40.70.
They are aggressively depreciating the rupee to grab the cash windfall from the internal capital reserves of the Bank of Mauritius and use it for the forthcoming Budget.
The monetary deficit financing was already impacting on the economy in terms of an accelerated depreciation of the rupee , adding to inflationary pressures besides un-anchoring inflationary expectations. The latest inflation expectations survey shows that 97.7 per cent of respondents were anticipating the future inflation rate to be above 2.5 per cent
.
We have given a gambling addict -our dear Payadachy-the keys to our casino and we are paying the price today- the irresponsible policies that have caused inflation to rear its head again while our pensioners are still awaiting their Rs 375 of cost of living compensation .
The recent downgrading by Moody's was a warning that it is time that we put our house in order-our "fiscal and debt metrics" . We cannot continue with such fiscal and monetary stimulus and we should beware of the rising interest rates globally !!!
