(Bloomberg) -- Mauritius’ new central bank Governor Rama Sithanen says his first priorities are combating the slide of the rupee and fixing a shortage of foreign currency in the domestic market.
A former finance minister in the Indian Ocean island nation, Sithanen on Saturday starts a three-year term at the helm of Bank of Mauritius, replacing Harvesh Seegolam.
Sithanen, 70, is an economist trained at the London School of Economics and also holds a PhD in political science. His appointment came at the recommendation of Prime Minister Navinchandra Ramgoolam, whose Alliance du Changement won a landslide victory at the Nov. 10 general elections.
“We should put an end to that policy of excessive consumption financed by the depreciation of the rupee” as it boosts inflation and value added tax income and creates a “monetary illusion,” Sithanen told reporters in Port Louis after a first series of meetings with central bank officials on Saturday. He added that halting the rupee’s depreciation “won’t happen overnight.”
Mauritius is a net importer of food and fuel, with its trade deficit set to reach a record of 195 billion rupees ($4.13 billion) this year, 8.3% higher than in 2023.
Since July, the central bank has been intervening on the market in response to shortages and with a view to supporting the currency, with the last related transaction made on Oct. 21.
The rupee fell by about 1.7% against the dollar this week, the most since mid-July, bringing losses for the year to nearly 7%. Inflation accelerated to 3.4% in October, the highest since April.
“There are structural problems to be resolved and reforms to be done so that we can increase revenue in foreign currency and reduce import expenditure in two sectors. We spend a lot on imported food and fuels,” he said.
Next week, the new central bank governor is scheduled to hold meetings with lenders and economic operators generating revenue in foreign currency.
In September, the monetary policy committee cut its key rate by 50 basis points, to 4%. A new monetary policy framework has been in place since January 2023, including an inflation target of 2% to 5%.
“We will conduct an audit of the situation with regard to reserves and monetary policy,” Sithanen said in an interview with Le Défi Plus published on Saturday. “It’s about slowing the depreciation of the rupee and determining the contingent liabilities of the Bank of Mauritius.”
--With assistance from Chris Miller.
(Updates with Sithanen comments starting in 4th paragraph)
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