Mauritius central bank holds repo rate, says economy strong

PORT LOUIS (Reuters) - Mauritius' central bank held its repo rate at 4.65 percent on Monday, its Monetary Policy Committee said, adding the Indian Ocean island's economy had continued to withstand external economic turbulence. "As global economic activity recovers, it is expected that GDP growth will pick up to a range of 3.7-4.0 per cent for 2014, that is, an increase of 0.5-0.8 percentage points above the estimated growth of 3.2 per cent in 2013 by Statistics Mauritius," the committee said in a statement. The bank has kept its key repo rate on hold since cutting it by 25 basis points in June to stimulate growth. A Reuters poll had forecast it would leave rates unchanged. Mauritius annual inflation rate remained unchanged at 3.5 percent in December from the previous month while the year-on-year rate rose to 4.0 percent from 3.9 percent in November. The committee said some of its members expected inflationary pressure to be subdued during the year and said that economic recovery could be endangered by monetary policy tightening. "Other members argued that domestic growth was firmly recovering while upside risks to inflation were increasing; on a no-policy change basis, year-on-year inflation could, in their view, rise to 5 percent by the end of the first quarter and end the year at around 4 percent," the committee said. The bank said high and rising excess liquidity had largely contributed to deteriorating conditions in the banking system. "Members were divided on the need to rapidly normalise the Key Repo Rate to address the risks to inflation and the excess liquidity situation while enhancing savings in the economy," the committee said, adding that it would issue minutes of its meeting on February 17.