Monetary developments during the first six months of the current fiscal year were marked by an unprecedented increase of Rs3,110 million in the net foreign assets of the Bank of Mauritius. Commercial banks invested a net amount of Rs3,979 million in government securities with the result that Government's reliance on the central bank fell by Rs2,295 million. In addition to investing in government securities, commercial banks lent a net amount of Rs2,415 million to the private sector. The combined effect of increases in net foreign assets and domestic credit was reflected in an increase of Rs6,695 million in money supply M2. Reserve money registered a small increase of Rs180 million as the increase in net foreign assets of the Bank of Mauritius was partly offset by the fall in central bank credit to Government.

Net foreign assets of the banking system rose by Rs3,458 million or by 15.7 per cent, from Rs22,087 million at the end of June 1999 to reach an all-time high of Rs25,545 million at the end of December 1999. In the corresponding period of 1998, they had declined by Rs1,473 million or by 7.0 per cent. This increase was largely driven by a rise of Rs3,110 million or of 20.3 per cent in the net foreign assets of the Bank of Mauritius, which stood at a record level of Rs18,425 million at the end of December 1999. In contrast, between end-June 1998 and end-December 1998, net foreign assets of Bank of Mauritius had gone down by Rs1,002 million or by 6.7 per cent. Net foreign assets of commercial banks rose by Rs348 million or by 5.1 per cent to Rs7,120 million at the end of December 1999 as compared to a drop of Rs471 million or of 7.5 per cent registered between end-June 1998 and end-December 1998.

Domestic credit expanded by Rs4,281 million or by 5.6 per cent, from Rs76,727 million at the end of June 1999 to Rs81,008 million at the end of December 1999, reflecting increases in both net credit to Government and credit to the private sector. Between end-June 1998 and end-December 1998, domestic credit had increased by Rs7,431 million or by 10.9 per cent.

Net credit to Government from the banking system rose by Rs1,684 million or by 10.5 per cent, from Rs16,013 million at the end of June 1999 to Rs17,697 million at the end of December 1999 as compared to a rise of Rs625 million or of 3.6 per cent recorded in the corresponding period of 1998. Net credit to Government from Bank of Mauritius declined by Rs2,295 million or by 50.2 per cent, from Rs4,576 million at the end of June 1999 to Rs2,281 million at the end of December 1999 as against an expansion of Rs2,378 million or of 96.9 per cent registered in the corresponding period of 1998. However, net credit to Government from commercial banks registered a positive growth of Rs3,979 million or of 34.8 per cent, from Rs11,437 million at the end of June 1999 to Rs15,416 million at the end of December 1999 as against a drop of Rs1,753 million or of 11.8 per cent registered in the corresponding period of 1998.

Credit to the private sector from commercial banks increased by Rs2,415 million or by 4.0 per cent, from Rs60,106 million at the end of June 1999 to Rs62,521 million at the end of December 1999. Credit was mainly channelled to "Hotels" (Rs1,404 million), "Investments in shares and debentures" (Rs1,150 million), "Housing (Rs286 million)" and "Construction sector" (Rs243 million), amongst others.

Money supply M2 went up by Rs6,695 million or by 8.3 per cent, from Rs80,204 million at the end of June 1999 to Rs86,899 million at the end of December 1999, higher than the rise of Rs4,551 million or of 6.4 per cent recorded in the corresponding period of 1998. Narrow money supply, M1, one of the components of M2, went up by Rs1,098 million or by 10.1 per cent, from Rs10,906 million at the end of June 1999 to Rs12,004 million at the end of December 1999, lower than the rise of Rs1,440 million or of 14.2 per cent registered in the corresponding period of 1998. Quasi-money, the other component of M2, went up by Rs5,597 million or by 8.1 per cent, from Rs69,298 million at the end of June 1999 to Rs74,895 million at the end of December 1999, higher than the rise of Rs3,111 million or of 5.1 per cent registered in the corresponding period of 1998.

The level of reserve money went up by Rs180 million or by 1.7 per cent, from Rs10,345 million at the end of June 1999 to Rs10,525 million at the end of December 1999 as against a much higher increase of Rs1,179 million or of 13.7 per cent recorded between end-June 1998 and end-December 1998.

On the international foreign exchange market, the US dollar, on an average basis, appreciated against the Japanese yen but depreciated vis-à-vis the major European currencies during January 2000. The Japanese yen, which had been appreciating against the dollar for seven consecutive months, reversed its trend to close January 2000 at a low of 106.81 as losses in Tokyo stocks and active dollar purchases pressured the Japanese currency. The Pound sterling maintained a firm tone against the dollar, benefiting from relatively high interest rates and market expectations of further interest rate hikes. The Bank of England, at its January 2000 Monetary Policy Committee meeting, raised UK base rate by 25 basis points to 5.75 per cent. On an average basis, the Euro appreciated against the dollar, trading at US$1.0153 in January 2000 as against US$1.0121 in December 1999. However, the Euro closed the month at below parity of US$0.9803.

Direct sales of foreign currencies by the Mauritius Sugar Syndicate (MSS) to the banking sector, mainly in Euros, amounted to an equivalent of US$18.6 million during January 2000.

Reflecting international trends and local market conditions, the rupee, on average, depreciated between December 1999 and January 2000 against the Pound sterling, Euro and US dollar by 1.8 per cent and 0.5 per cent and 0.2 per cent, respectively but appreciated vis-à-vis the Japanese yen by 2.3 per cent. The rupee lost ground against the Pound sterling to trade at an average rate of Rs42.015 in January 2000 compared with an average rate of Rs41.265 in December 1999. The rupee edged lower against the Euro, trading at an average rate of Rs26.056 in January 2000 as against an average rate of Rs25.918 in December 1999. The rupee remained rangebound vis-à-vis the US dollar, trading at an average rate of Rs25.641 in January 2000 compared with an average rate of Rs25.597 in December 1999. The rupee recovered against the Japanese yen, to trade at an average rate of Rs24.457 per 100 Yen in January 2000 as against an average rate of Rs25.016 per 100 Yen in December 1999.

On an average basis, our competitors' currencies appreciated sharply against the Euro between January 1999 and January 2000. The Thailand baht, Hong Kong dollar, Singapore dollar, Korean won, Taiwan dollar and Indonesian rupiah appreciated against the Euro by 11.8 per cent, 13.6 per cent, 14.5 per cent, 18.4 per cent, 19.5 per cent and 35.4 per cent, respectively, whereas the Mauritian rupee showed an appreciation of 11.2 per cent against the Euro.

The foreign exchange reserves of the Bank of Mauritius increased by Rs488 million, from Rs18,425 million at the end of December 1999 to yet another high of Rs18,913 million at the end of January 2000.

Net international reserves of the country, made up of the net foreign assets of the banking system, the foreign assets of the Government and the country’s Reserve Position in the International Monetary Fund (IMF), increased by Rs1,615 million, from Rs24,436 million at the end of November 1999 to an all-time high of Rs26,051 million at the end of December 1999. Based on the value of the import bill for fiscal year 1998-99, excluding the purchase of aircraft, the end-December 1999 level of net international reserves of the country represented 26.3 weeks of imports, up from 24.6 weeks at the end of November 1999.