Mauritius monetary policy committee needs to be more independent -cbank governor

Fri Feb 28, 2014 11:24am EST

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* Central Bank officials are a minority in MPC

* Top finance officials disagree over rates

By Jean Paul Arouff

PORT LOUIS, Feb 28 (Reuters) - Mauritius' central bank governor called on Friday for more independence in forming the monetary policy committee, weeks after a rift with the finance minister over interest rate levels on the Indian Ocean island.

Central Bank Governor Rundheersing Bheenick and Finance Minister Xavier Duval have publicly disagreed over whether to raise interest rates and over government borrowing. The two met on Feb. 18 to discuss their differences.

The debate over policy will be watched by investors as Mauritius seeks to build up an offshore financial industry, in its effort to diversify its economy from tourism and textiles.

The governor said in an annual open letter to stakeholders that the voting pattern in the monetary policy committee (MPC) inevitably weighs on the overall credibility of the monetary policy decision-making process.

Now, the MPC has eight members, three of them central bank executives and five appointed by the finance minister, although the finance ministry is not involved in the decision-making process.

Bheenick said the MPC had entrenched divisions, pitting the bank's executives against "external" members.

"The time is ripe for a review of legislation to give the bank operational independence in the formulation and implementation of monetary policy," the governor wrote, adding many developing nations and major economies had indepedent MPCs.

"A second issue is the raging controversy around growth versus inflation, with the bank resolutely sticking to the last and not allowing itself to stray from its core mandate of price stability," he said.

The bank held the benchmark repo rate at 4.65 percent this month, but its members were divided, triggering a public rift between the governor and finance minister.

Bheenick said hiking the rate would protect Mauritius from turbulence that has hit other emerging markets and would address a low level of savings. He said government foreign borrowing was pumping too much money into the banking system.

But the finance ministry blamed excess liquidity on sluggish demand for credit, frequent purchases of foreign currencies by the central bank to build up its reserves and the bank's constant signalling that it wanted a tighter monetary stance.

Minutes of this month's MPC meeting showed the central bank governor and his two deputies were in the minority when they voted for a 50 basis point rate hike.

"Today you have people who are part-timers on the MPC but when a decision is taken, public opinion does not refer to these people but to the governor," former central bank governor and analyst Dan Maraye said. (Writing by James Macharia; Editing by Susan Fenton)

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