Thursday, February 26, 2009

Mauritian Rupee Slumps Most in Month as Exporters Hoard Dollars

By Garth Theunissen, Feb. 25 (Bloomberg)

The Mauritian rupee weakened the most in a month as exporters on the Indian Ocean island-nation hoarded dollars and on speculation the local currency may weaken as the central bank cuts interest rates to spur the economy.

The rupee depreciated as much as 4.9 percent to 35.0500 per dollar, the steepest intraday decline since Jan. 26, and traded at 34.1570 as of 6:41 p.m. local time, a 2.3 percent decline from the previous close and the worst performance today among global currencies tracked by Bloomberg. The drop extended the rupee’s loss this year to 7 percent.

“Mauritian exporters are holding onto their dollar earnings because there is no supply of foreign exchange coming into the market,” said Maggie Haskins, a currency dealer on Rand Merchant Bank’s Africa desk in Johannesburg. “There’s a strong expectation the rupee will continue to weaken as the economy slows.”

Mauritius, located about 500 miles (805 kilometers) off the east coast of Madagascar, earns most of its foreign currency from tourism and the export of sugar, clothing and textiles. Recessions in the U.S., the U.K., Japan and euro-region countries threaten revenue from tourism and textiles, prompting the International Monetary Fund to lower its forecast for Mauritius’s rate of economic expansion to 2 percent this year from more than 5 percent last year.

“The IMF’s significant growth downgrade suggests that some form of stimulus package may be needed to alleviate pressure on the economy,” said Matthew Pearson, an analyst at Renaissance Capital in London. “We’d expect an interest-rate cut of at least 50 basis points to be part and parcel of that package.”

Rate Cut

The Port Louis-based Bank of Mauritius reduced its benchmark rate for the second time in less than two months on Dec. 8, lowering it by 1 percentage point to 6.75 percent. Slowing global economic growth and a 72 percent decline in the price of oil since July last year meant “domestic inflationary pressures are abating,” policy makers said in a statement on the same day. Inflation declined to 5.2 percent in January from 6.7 percent the month prior, the country’s statistics agency said on Feb. 9.

RMB also expects Mauritian policy makers to lower their benchmark rate by 50 basis points when they meet on March 26, Haskins said.