Net foreign assets of the banking system declined by Rs326 million or by 1.3 per cent, from Rs25,509 million at the end of January 2000 to Rs25,183 million at the end of February 2000. Net foreign assets of Bank of Mauritius dropped by Rs358 million or by 1.9 per cent, from Rs18,913 million to Rs18,555 million, while net foreign assets of commercial banks rose by Rs32 million or by 0.5 per cent, from Rs6,596 million to Rs6,628 million.

Domestic credit contracted by Rs154 million or by 0.2 per cent, from Rs81,820 million at the end of January 2000 to Rs81,666 million at the end of February 2000.

Net credit to Government went down by Rs136 million or by 0.8 per cent, from Rs17,382 million at the end of January 2000 to Rs17,246 million at the end of February 2000. Net Credit to Government from Bank of Mauritius fell by Rs204 million or by 10.1 per cent, from Rs2,017 million to Rs1,813 million. Net Credit to Government from commercial banks increased by Rs67 million or by 0.4 per cent, from Rs15,365 million to Rs15,432 million.

Credit to the private sector from commercial banks went down by Rs13 million, from Rs63,661 million at the end of January 2000 to Rs63,648 million at the end of February 2000. There was a drop in credit to "Traders" (Rs419 million), "Statutory and Parastatal Bodies" (Rs211 million) and "Hotels" (Rs155 million), partly offset by additional credit extended to "EPZ" (Rs352 million), "Other Industries & Manufacturers" (Rs204 million) and by way of "Investments in Shares and Debentures" (Rs105 million).

Money Supply M2 fell by Rs129 million or by 0.1 per cent, from Rs87,459 million at the end of January 2000 to Rs87,330 million at the end of February 2000. Quasi money, one of the components of M2, rose by Rs243 million or by 0.3 per cent, from Rs 76,369 million to Rs76,612 million. Narrow money supply M1, the other component of M2, went down by Rs373 million or by 3.4 per cent, from Rs11,090 million to Rs10,717 million.

Reserve money dropped by Rs1,045 million or by 9.8 per cent, from Rs10,700 million at the end of January 2000 to Rs9,655 million at the end of February 2000.

On the international foreign exchange market, the US dollar, on an average basis, depreciated against the Japanese yen but appreciated against the Euro and Pound sterling during March 2000. The US economy remained very strong with inflation well under control. As widely expected, the Fed raised its federal funds rate and discount rate by 25 basis points to 6.00 per cent and 5.50 per cent respectively at its FOMC meeting on 21 March 2000. In the wake of the Fed’s decision, confidence in the US stock markets heightened as the moderate rate hike implied that the Fed would stick to its policy of gradual tightening. Release of data on the current account deficit, which increased by 12 per cent in the fourth quarter of 1999, had no impact on the market. Towards the end of the month, however, the US dollar was weaker as the Nasdaq Composite Index declined sharply following the release of stronger-than-expected fourth quarter GDP data, which fuelled expectations that the Fed would depart from the gradualist approach and tighten monetary policy more aggressively.

The Japanese yen gained ground against the dollar amid growing expectations of a quick economic recovery in Japan and fund repatriation by Japanese investors ahead of the financial year ended March 31. Although Japan's fourth quarter 1999 GDP data was below expectations, corporate capital spending surged by 4.6 per cent. The yen remained broadly strong throughout the month despite dollar-buying intervention by the Bank of Japan with a view to preventing the strongly appreciating yen from choking off Japan's economic recovery.

The Pound sterling started the month on a weak tone in the wake of comments by Bank of England officials that it would be unwise to keep raising interest rates unless there was evidence of sterling declining. At its Monetary Policy Committee meeting on 9 March 2000, the Bank of England left its key interest rate unchanged at 6.0 per cent. On 21 March, the Pound hit an eight-month low against the dollar on mounting expectations that US interest rates would outstrip those in Britain in the coming months and make returns on sterling deposits less attractive. However, thereafter, the Pound sterling recovered on the back of upward revised forecasts for the 2000 UK economic growth and hawkish comments by the Bank of England Governor, who said that UK interest rates would not be cut to weaken the Pound.

The Euro was under pressure during the month under review, as the underlying sentiment remained deeply bearish despite overall positive economic data and hawkish comments from ECB officials. The ECB at its Governing Council meeting, on March 1 left its interest rates unchanged, but later on March 16 raised its refinancing rate by 25 basis points to 3.50 per cent on account of the potential inflationary pressures arising from higher energy prices and the softer Euro. The Euro, which edged up immediately after the ECB announcement, thereafter shrugged off some of its gains as the markets discounted the rate move. The single currency also benefited from the surprised rate hike of 75 basis points of the Swiss National Bank (SNB), fuelling expectations that the ECB might follow the SNB and raise its refinancing rate sooner rather than later. However, the Euro fell back towards the end of the month as doubts emerged about whether the ECB would tighten its policy.

Direct sales of foreign currencies by the Mauritius Sugar Syndicate (MSS) to the banking sector during March 2000 amounted to an equivalent of US$2.4 million. The Bank of Mauritius intervened in the interbank foreign exchange market selling a total amount of US$7.2 million during the same month.

Reflecting international trends and local market conditions, the rupee, on average, depreciated between February 2000 and March 2000 against the Japanese yen and US dollar by 2.6 per cent and 0.2 per cent, respectively. It appreciated vis-à-vis the Euro and Pound sterling by 1.8 per cent and 1.2 per cent, respectively. The rupee edged down against the US dollar, trading at an average rate of Rs25.792 in March 2000 as against an average rate of Rs25.748 in February 2000. The rupee lost ground vis-à-vis the Japanese yen, to trade at an average rate of Rs24.251 per 100 Yen in March 2000 as against an average rate of Rs23.611 per 100 Yen in February 2000. The rupee gained against the Euro to trade at an average rate of Rs24.903 in March 2000 compared with an average rate of Rs25.341 in February 2000. The rupee firmed up vis-à-vis the Pound sterling, trading at an average rate of Rs40.730 in March 2000 as against Rs41.235 in the preceding month.

On an average basis, between January 1999 and March 2000, our competitors' currencies appreciated sharply against the Euro. The Philippines peso, Thailand baht, Singapore dollar, Hong Kong dollar, Taiwan dollar, Korean won and Indonesian rupiah, appreciated against the Euro by 12.4 per cent, 16.0 per cent, 17.5 per cent, 19.4 per cent, 26.0 per cent, 26.1 per cent, 38.6 per cent, respectively. The Mauritian rupee appreciated by 16.4 per cent during the same period.

The foreign exchange reserves of the Bank of Mauritius fell by Rs341 million, from Rs18,555 million at the end of February 2000 to Rs18,214 million at the end of March 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), decreased by Rs331 million, from Rs26,011 million at the end of January 2000 to Rs25,680 million at the end of February 2000. Following the release of external trade data for the fourth quarter of 1999, import coverage has been revised and is now based on the value of the import bill for calendar year 1999, excluding the purchase of aircraft. On this basis, the end-February 2000 level of net international reserves of the country represented 24.4 weeks of imports, down from 24.8 weeks at the end of January 2000.