How Mauritius Affected by Global Financial Crisis

How Mauritius affected by Global financial crisis

The now famous ?financial crisis?, which started in the US markets in July 2007, has already had a spill-over effect on European banks and other global major banks and economies. Though some might argue that most economies are decoupled with one another, we believe that the Mauritian economy and local stock market is fairly correlated with US and European economies. From February 2008, the local stock market and Mauritian economy (which have seen growth forecasts trimmed) have been put under enormous pressure and major players such as the Central bank have been in the dilemma of sustaining growth or inflation control, thus the split in the Central Bank Monetary policy. Between the positive assurances of our ministers and the pessimistic outlook of our lobby groups, it can be hard to make sense of how the financial crisis has and will continue to affect the Mauritian economy. Being a small and open economy, Mauritius can hardly be sheltered from global economic hiccups.

Over the past six months, exports to Europe, our main trading partner have come under increasing pressure and tourism receipts have slowed. Over the next year, the current account deficit is likely to widen and volatile capital inflows should continue to slow. Despite a favourable interest rate differential, the Mauritian Rupee has come under sustained pressure since the end of April and has since then depreciated by 17% vs. the USD putting a negative dent on inflation. The medium term outlook for the MUR/USD remains uncertain but biased towards the downside unless a sudden large inflow of Foreign Direct Investment. On its part the mere fact that Europe may be in deeper trouble than the US has had a negative impact on the EUR and the USD has rallied from 1.58 to 1.34 USD/EUR. Volatility in the MUR/USD exchange rate has shot up in recent months and the recent 40M dollars worth of dollar sales in the FOREX market has done precious little to break the...