Mauritius raises policy rate 25bp as inflation outlook worsens
The Bank of Mauritius' Monetary Policy Committee unanimously raised the policy rate by 25 basis points on May 20, 2026. The decision aims to preserve price stability amid escalating geopolitical tensions and a worsening inflation outlook.
Geopolitical shocks drive inflation
The Monetary Policy Committee of the Bank of Mauritius unanimously decided to increase the policy rate by 25 basis points, citing macroeconomic implications from escalating geopolitical tensions and the US-Iran conflict.
This decision aims to preserve price stability and mitigate second-round inflationary effects.
Headline inflation remained at 4.2 percent between March and April 2026, but year-on-year inflation rose notably to 3.6 percent in April from 2.7 percent in March, primarily driven by rising energy prices.
Staff projections, based on a baseline scenario assuming USD90 oil, now forecast headline inflation to reach around 5.5 percent in 2026, significantly above the previous forecast of 3.6 percent and exceeding the 2-5 percent target range.
The Committee remains vigilant against further increases in global energy and freight costs.
Growth outlook softens, external risks persist
The domestic economic outlook has softened, with real GDP growth for 2026 now forecast at 2.8 percent, a downward revision from the 3.3-3.5 percent projected in February 2026.
This reflects the adverse impact of higher fuel and electricity costs on household purchasing power and a moderation in tourist arrivals, which saw an 8 percent year-on-year decline in April.
Globally, energy prices have raised inflation and moderated growth prospects, with the IMF revising global growth to 3.1 percent for 2026.
Financial markets have experienced heightened volatility, and the Mauritian rupee depreciated by 2.9 percent against the US dollar, 1.0 percent against the euro, and 1.5 percent against the Pound sterling since the previous MPC meeting.
Most major central banks have held policy rates unchanged, intensifying policy trade-offs.
Timely action, uncertain impact
The Bank of Mauritius' rate hike is a timely and necessary response to clear inflationary pressures and a worsening domestic outlook.
However, given the predominant external nature of these shocks, such as geopolitical tensions and global oil prices, the effectiveness of domestic monetary policy might be limited without broader global stabilization.
This decision underscores the central bank's commitment to price stability, yet the path ahead remains highly dependent on external factors beyond its direct control.