Mauritius central bank, finance ministry to agree inflation target - PM

PORT LOUIS, June 29 Sun Jun 29, 2014 6:51am EDT

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PORT LOUIS, June 29 (Reuters) - Mauritius' central bank and finance ministry agreed to set an inflation target and coordinate other monetary policy issues, the prime minister said, signalling that a row over the direction of interest rates could be over.

The Bank of Mauritius has called for a rate hike to encourage savings while the former finance minister had pushed to keep rates steady, saying the central bank should use other means to draw out excess liquidity.

The row had been played out in public statements. The former minister, Xavier Duval, resigned in June in a row over a separate issue. The premier of the Indian Ocean island nation is now acting finance minister.

The island's Monetary Policy Committee, five of whose eight members were appointed by the finance ministry, held the benchmark repo rate at 4.65 percent when it last met in April. Some members had argued for a rise.

"A memorandum of understanding between the Ministry of Finance and the Bank of Mauritius will be signed shortly that should ensure better clarity on monetary policy and effective coordination on issues such as the management of excess liquidity and the setting up of an inflation target," Prime Minister Navinchandra Ramgoolam said late on Friday.

He did not say when the deal would be signed, but it could bring an end to a public spat about interest rates and other aspects of monetary policy.

Ramgoolam was speaking at a Mauritius Chamber of Commerce dinner.

Year-on-year inflation slipped to 3.40 percent in May from 4.20 percent in April.

(Reporting by Jean Paul Arouff; Writing by Edmund Blair: editing by John Stonestreet)

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