Bank of Mauritius Sees Inflation Breaking 5% Ceiling 

With inflation already edging toward the upper bound of its 2 to 5 per cent target range, the central bank is warning that rising fuel and freight costs driven by conflict in the Middle East could push prices to around 5 per cent by year-end, testing the island’s monetary stability at a time when it remains heavily dependent on imports for food, energy and industrial inputs.

Inflation in Mauritius could exceed the upper end of the central bank’s target range this year as rising fuel and freight costs linked to conflict in the Middle East feed through to consumer prices, according to governor Dr Priscilla Muthoora Thakoor.

The Bank of Mauritius, Bloomberg reports, had forecast average annual inflation of 3.6 per cent by the end of the year in February, but the outlook has worsened as import costs climb. Inflation could approach 5 per cent, the top of the bank’s preferred range, if current pressures persist.

“As the war drags on, we might be looking at inflation rates that are closer to the upper bound of our target range,” Thakoor said in an interview in Port Louis ahead of a monetary policy committee meeting scheduled for May 20. “By end of the year, there’s a chance we might exceed the 5% for the headline CPI inflation if the conflict is prolonged or escalates.”

The central bank has kept inflation within its 2 to 5 per cent target band for the past eight months, after a surge to 12.2 per cent in December 2022 following Russia’s invasion of Ukraine. The renewed pressure reflects Mauritius’s heavy reliance on imported fuel, food and equipment.

Since late February, the government has raised gasoline prices for the first time since October 2023, while diesel costs have climbed to record levels. The state-owned Central Electricity Board is also implementing a 15 per cent increase in tariffs this month, adding to inflationary pressures.

Thakoor, a former International Monetary Fund economist who joined the central bank in September, will chair her third rate-setting meeting later this month. The policy rate has been held at 4.5 per cent since November.

The committee’s decision on policy “will be guided by what’s happening on inflation, the growth outlook and developments in the economy,” she said. “Prudent. That’s the way to summarize our approach.”

Mauritius, an island nation of about 1.2 million people, is expected to run a trade deficit of about $4.47bn this year, reflecting its dependence on imports. The Mauritian rupee has weakened 1.6 per cent against the dollar this year and remains near recent lows.

“Right now, the level of the rupee reflects demand and supply conditions as well as market behavior,” Thakoor said.

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