OVERVIEW

After successive declines in April and May 1999, net foreign assets of the banking system went up by Rs673 million or by 3.1 per cent, from Rs21,414 million at the end of May 1999 to Rs22,087 million at the end of June 1999. Net foreign assets of the Bank of Mauritius increased by Rs233 million, from Rs15,082 million at the end of May 1999 to Rs15,315 million at the end of June 1999, or by 1.5 per cent as compared to a drop of 1.8 per cent between end-April 1999 and end-May 1999. Net foreign assets of commercial banks rose by Rs440 million, from Rs6,332 million at the end of May 1999 to Rs6,772 million at the end of June 1999, or by 6.9 per cent.

A drop in net credit to Government from the banking system, partly offset by a rise in credit to the private sector, resulted in a marginal decline of Rs51 million or by 0.1 per cent in total domestic credit, from Rs76,778 million at the end of May 1999 to Rs76,727 million at the end of June 1999. Between end-April 1999 and end-May 1999, domestic credit expanded by 1.9 per cent.

Net credit to Government from the banking system went down by Rs922 million, from Rs16,935 million at the end of May 1999 to Rs16,013 million at the end of June 1999, or by 5.4 per cent as compared to an increase of 0.7 per cent recorded between end-April 1999 and end-May 1999. Net credit to Government from Bank of Mauritius rose by Rs507 million, from Rs4,069 million at the end of May 1999 to Rs4,576 million at the end of June 1999, or by 12.5 per cent as against a drop of 3.9 per cent recorded between end-April 1999 and end-May 1999. Net credit to Government from commercial banks fell by Rs1,429 million, from Rs12,866 million to Rs11,437 million at the end of June 1999, or by 11.1 per cent as compared to a rise of 2.3 per cent registered between end-April 1999 and end-May 1999.

Credit to the private sector from commercial banks continued to expand, rising by Rs856 million, from Rs59,250 million at the end of May 1999 to Rs60,106 million at the end of June 1999, or by 1.4 per cent, down from 2.4 per cent between end-April 1999 and end-May 1999. During the month under review, the increase in credit was directed mainly to "Investments in tax-free debentures" (Rs259 million), "Hotels" (Rs186 million), "Sugar Industry" (Rs167 million), and "Housing" (Rs125 million).

Money supply M2 rose by Rs1,214 million, from Rs78,990 million at the end of May 1999 to Rs80,204 million at the end of June 1999, or by 1.5 per cent as compared to an increase of 0.6 per cent between end-April 1999 and end-May 1999. Quasi-money went up by Rs1,042 million or by 1.5 per cent, from Rs68,256 million at the end of May 1999 to Rs69,298 million at the end of June 1999. Narrow money supply M1 edged up by Rs172 million or by 1.6 per cent, from Rs10,734 million at the end of May 1999 to Rs10,906 million at the end of June 1999.

Reserve money increased by Rs1,137 million, from Rs9,208 million at the end of May 1999 to Rs10,345 million at the end of June 1999, or by 12.3 per cent whereas a drop of 6.0 per cent was registered between end-April and end-May 1999.

On the international foreign exchange market, the US dollar, on an average basis, appreciated against the Pound sterling and Euro but depreciated vis-à-vis the Japanese yen during July 1999. At the beginning of July 1999, the Pound sterling reached a trough of US$1.5485, its lowest level since August 1996, while the Euro fell to a new lifetime low of US$1.0145, on the New York market. Thereafter, the Pound in tandem with the Euro rallied vis-à-vis the dollar against the backdrop of the weak tone of the US currency. The US dollar weakened after the Federal Reserve Chairman signalled in his Humphrey-Hawkins testimony that interest rates would be raised if the Federal Reserve saw clear signs of inflationary pressure. The Euro also derived support from improving sentiment about the euro zone and closed July 1999 at a two-month high of US$1.0710. Following yen-selling intervention by the Bank of Japan and by the Federal Reserve Bank of New York on behalf of the Bank of Japan, the Japanese currency lost ground against the dollar during the first half of July 1999. Thereafter, the yen strengthened vis-à-vis the US currency, deriving support from the continued absence of intervention by the Japanese monetary authorities on the foreign exchange market.

The Bank of Mauritius sold through intervention on the interbank foreign exchange market an amount of US$14.9 million to commercial banks in July 1999. Direct sales of foreign currencies by the Mauritius Sugar Syndicate (MSS) to the banking sector, mainly in Euros, amounted to an equivalent of US$12.6 million in July 1999.

Reflecting international trends and local market conditions, the rupee, on an average basis, depreciated between June 1999 and July 1999 against the Japanese yen and US dollar by 1.1 per cent and 0.2 per cent, respectively, but appreciated vis-à-vis the Pound sterling and Euro by 1.2 per cent and 0.1 per cent, respectively. The rupee, which traded at an average rate of Rs21.062 per 100 yen in June 1999 reached Rs21.306 per 100 yen in July 1999. Against the US dollar, the rupee traded at an average rate of Rs25.434 in July 1999 compared with Rs25.375 in June 1999. The rupee strengthened against the Pound sterling to trade at an average rate of Rs40.009 in July 1999 as against an average rate of Rs40.471 in June 1999. Against the Euro, the rupee traded at an average rate of Rs26.332 in July 1999 compared with an average rate of Rs26.360 in the previous month.

As a result mainly of intervention on the interbank foreign exchange market, the foreign exchange reserves of the Bank of Mauritius decreased by Rs358 million, from Rs15,315 million at the end of June 1999 to Rs14,957 million at the end of July 1999.

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 Rs670 million, from Rs21,905 million at the end of May 1999 to Rs22,575 million at the end of June 1999. Based on the value of the import bill for calendar year 1998, the end-June 1999 level of net international reserves of the country represented 23.6 weeks of imports as compared to 22.9 weeks of imports at the end of May 1999.