Bank of Mauritius raises CRR on rupee deposits to tackle excess liquidity

The central bank has hiked the fortnightly average CRR from 8.0 per cent to 9.0 per cent and the daily minimum CRR from 5.5 per cent to 6.5 per cent, with effect from the fortnight starting today. (Image: Bank of Baroda)

Bank of Mauritius declared that the Cash Reserve Ratio (CRR) on rupee deposits will be raised starting today, in an effort to suck extra money from the banking system and to tackle excess liquidity.

Excess liquidity implies a scenario where there is too much money floating around in the banking system, and given that the GDP growth rate of the island economy has also slowed down from 3.4% in 2012 to 3.2% in 2013, it means a situation where there is too much money running after too few goods, leading to price rise or inflation.

Accordingly, to retain a higher proportion of the rupee deposits held by banks with itself, and to reduce excess money in the system, the central bank has hiked the fortnightly average CRR from 8.0 per cent to 9.0 per cent and the daily minimum CRR from 5.5 per cent to 6.5 per cent, with effect from the fortnight starting today.

However, it may be noted that there is no change in the fortnightly average CRR and the daily minimum CRR on foreign currency deposits, which remain at 6.0 per cent and 4.5 per cent, respectively.

The communiqué announced that the first maintenance period will run from May 2 to 15, 2014 where banks will have to maintain average rupee cash balances equivalent to 9.0 per cent of their average rupee deposit holdings and average foreign currency cash balances equivalent to 6.0 per cent of their average foreign currency deposit holdings for the period April 18, 2014 to May 1, 2014.

Meanwhile, the Broad Money Liabilities (BML) of the central bank grew by Rs 2,711 million, from Rs 369,067 million at the end of February 2014 to Rs 371,778 million at the end of March 2014. The annual growth rate of BML went down from 7.0 per cent at the end of February 2014 to 6.8 per cent at the end of March 2014.

The broad components of BML are domestic credit, net claims on central government and net foreign assets of depository corporations.

With regard to the sources of BML, domestic credit climbed by Rs2,922 million, from Rs 435,872 million at the end of February 2014 to reach Rs 438,794 million at the end of March 2014. The annual rate of growth of domestic credit stood at 10.3 per cent at the end of March 2014, up from 9.1 per cent at the end of February 2014.

Net claims on central government are estimated at Rs 35,854 million at the end of March 2014 from Rs 34,818 million at the end of February 2014, representing a growth of Rs 1,036 million or 3.0 per cent.

Compared to an increase of 0.6 per cent recorded in February 2014, claims on other sectors amounted to Rs 402.941 million at the end of March 2014, representing an increase of Rs 1.886 million or 0.5 per cent.

Hence, the annual growth rate of claims on other sectors expanded at a higher rate 9.0 per cent at the end of March 2014 compared to 7.8 per cent at the end of February 2014.

The month of March saw a decline of Rs 2.787 million or 0.7 per cent in the net foreign assets of depository corporations. The net foreign assets of depository corporations stood at Rs 371.677 million at the end of March 2014, lesser than the Rs 374,464 million recorded at the end of February 2014.

Furthermore, net foreign assets went down by 6.2 per cent in the year to March 2014, as against an increase of 0.7 per cent in the year to February 2014.