Bank of Mauritius faces IMF warnings over monetary policy gaps

The International Monetary Fund (IMF) has advised the Bank of Mauritius to address operational deficiencies in its monetary policy implementation. According to an IMF report, structural excess liquidity has created a gap between the official policy rate and actual market conditions, weakening the transmission of interest rate decisions.

Since the adoption of an inflation-targeting regime in January 2023, the IMF noted that caps on certain bond issuances have contributed to persistent excess liquidity. This has caused the interbank rate to align more closely with deposit rates rather than the intended policy rate, complicating capital market development.

Separately, the Bank of Mauritius reported a slowdown in domestic demand, noting a decline in consumer spending—the first such decrease since the Covid-19 pandemic. This decline is primarily attributed to reduced public consumption. While household consumption has seen only modest growth due to uncertainty, investment has begun to recover following five quarters of contraction, supported by spending on machinery and equipment.