Mar 22, 2023
With Africa’s Lowest Inflation, Seychelles Is Set to Hold Rates
(Bloomberg) -- Seychelles is set to keep borrowing costs unchanged for a seventh quarter next week as currency strength helps maintain one of Africa’s lowest inflation rates.
“The current monetary policy rate of 2% is appropriate, given the prevailing macroeconomic conditions,” the Victoria-based Central Bank of Seychelles said in an e-mailed response to questions on Tuesday.
Annual inflation slowed to an almost three-year low of 1.1% in February and averaged 2.6% in 2022, making the palm-fringed Indian Ocean archipelago a global outlier. The rate in February was the lowest in Africa alongside Niger’s, where prices increased by the same margin.
Price shocks caused by a strong dollar, Russia’s war with Ukraine, supply-chain disruptions, extreme weather and Covid-19 last year unleashed monetary tightening across the world at a scale not seen since the 1980s. For many nations, high inflation has persisted into 2023.
The tightened financial conditions have in part led to a series of banking failures in the US, forced a rescue of Swiss lender Credit Suisse Group AG in Europe and sent investors fleeing from the riskiest assets worldwide. The turmoil has also complicated the Federal Reserve’s resolve to combat high inflation.
Read more: Fed Caught Between Inflation and Bank Crisis: Decision-Day Guide
Price-growth in tourism-dependent Seychelles is projected to remain at current levels in the coming months, according to the central bank, which cited a “relatively stronger domestic currency and lower forecasted international fuel prices.”
The Seychellois rupee, buoyed by sustained inflows of foreign currency because of a rebound in the tourism industry that was decimated by Covid-19, has rallied almost 60% since plunging to 21.2 per dollar at the height of the pandemic.
“Moderation in inflation and the improvement in the economic activity of various sectors — albeit at a varying extent and lower than pre-pandemic levels — implies that the current stance is suitable,” the central bank said.
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