PORT LOUIS (Reuters) - Rising inflation in Mauritius poses a risk to economic growth and may bring an end to monetary easing, the central bank said on Tuesday.
The Indian Ocean island’s $10 billion economy is expected to post a 4.2 percent economic growth rate this year according to its statistics office.
Business optimism at home is however taking time to pick up, while private investment and spending are not rising fast enough to sustain growth, extending the uncertainty wrought by cost-push inflation, the Bank of Mauritius said.
“With the rise in commodity prices and rising inflation in Asia, imported and cost-push inflation may either squeeze the profits of firms further or feed into higher prices,” the central bank said in its Financial Stability Report.
The annual average inflation rate ticked up for the seventh straight month in January to 3.3 percent from 2.9 percent a month earlier while the year-on-year rate rose to 6.4 percent from 6.1 in December according to Thomson Reuters calculations.
The central bank reduced its key Repo Rate by 100 basis points to 4.75 percent in September 2010 and at the last meeting held in December, the Monetary Policy Committee felt that the balance of risks did not warrant any change in the policy rate.
“The expected surge in food and energy prices may worsen the short to medium term inflation outlook leading to a possible end of the monetary easing stance,” it said in the report.
The current account deficit is expected to widen further this year, pulled by increased imports, it added.
One of Africa’s most stable and prosperous economies, Mauritius expects the current account deficit to widen to 10 percent of gross domestic product this year, from 9.8 percent in 2010.
“The deficit in the current account in 2010 was financed from the significant capital inflows without undue pressure on exchange rates,” the bank said.