## Modernizing Monetary Policy in Mauritius: Implementation, Analytics, and Communication at the Bank of Mauritius

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**Canonical URL:** [Modernizing Monetary Policy in Mauritius: Implementation, Analytics, and Communication at the Bank of Mauritius](https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026080.pdf)

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### Abstract and Motivation
- Since the adoption of an explicit inflation-targeting (IT) regime in January 2023, Mauritius has pursued a comprehensive modernization of its monetary policy framework.
- Reforms have focused on strengthening: (i) monetary policy implementation; (ii) analytical capacity via a Forecasting and Policy Analysis System (FPAS); and (iii) central bank communication.
- Remaining gaps—most notably incomplete implementation of the operational framework and limited forward-looking analytical content in external communication—have constrained monetary transmission and the anchoring of inflation expectations.
- This paper was completed on June 18, 2026 (SIP/2026/080) and is also published as IMF Country Report No 26/179.

### Monetary Policy Implementation: Achievements and Remaining Challenges
- Reform design (2023):
  - Introduced a clear hierarchy: ultimate objective of price stability → intermediate target of inflation forecast → operational target of the overnight interbank rate.
  - Centered on a single policy rate—the “Key Rate”—and implementation via fixed-rate, full-allotment issuance of 7-day BOM bills within a symmetric interest rate corridor defined by standing deposit and lending facilities.
- Main achievements:
  - The single policy rate reinforced the role of interest rates for signaling monetary stance; banks view the “Key Rate” as an important reference for pricing loans.
  - The symmetric corridor and expanded liquidity toolkit (reserve requirements, short-term bills, longer-term BOM securities, standing facilities) enhanced operational flexibility and transparency.
- Incomplete implementation and transmission challenges:
  - Since mid-2023, issuance of 7-day BOM bills has been capped, generating persistent excess liquidity in the banking system.
  - Effective marginal absorption has been determined largely by the overnight deposit facility rate rather than by the “Key Rate”, yielding a looser effective stance than signaled by the “Key Rate”.
  - The overnight interbank rate has tended to trade close to the deposit facility rate rather than around the policy rate, reducing the anchoring function of the “Key Rate”.
  - Loose liquidity conditions contribute to: lack of a univocal operational target; wider intermediation margins; heightened interest-rate risk for banks; and a shallow money market that may constrain broader capital market development.
- Policy priorities for implementation:
  - Restore fixed-rate, full-allotment issuance of 7-day BOM bills at the policy rate to realign the effective stance with the announced “Key Rate” and strengthen interest-rate transmission—recognizing that any realignment given current liquidity conditions must be carefully calibrated and clearly communicated.
  - Enhance monitoring and communication of the effective monetary policy stance and adopt a transparent framework guiding the mix between short- and longer-term liquidity absorption instruments to support credibility and accountability.
- Survey and technical inputs:
  - During 2025, IMF’s AFRITAC South conducted a survey among commercial banks to elicit views on the interbank money market, funding and liquidity management, pricing and monetary policy transmission.

### Strengthening Forecasting and Policy Analysis (FPAS)
- Role of FPAS:
  - FPAS has become the analytical backbone of Mauritius’s inflation-targeting framework, supporting model-based forecasting, structured policy analysis, and forward-looking decision-making.
- Core tools:
  - Central element: Mauritius-tailored Quarterly Projection Model (QPM).
  - Complemented by satellite tools for nowcasting, near-term forecasting, and sectoral analysis to produce internally consistent baseline projections and alternative scenarios.
  - Mauritius QPM is described in Pampusa et al (2025) and is linked to IMF Working Papers 25/215.
- Institutional integration:
  - FPAS is embedded via a structured quarterly forecasting calendar aligned with pre-announced Monetary Policy Committee (MPC) meeting dates.
  - Staff roles are defined and coordination across BOM departments supports a unified institutional view; baseline projections and scenarios are central to MPC discussions.
- Priorities to consolidate FPAS gains:
  - Refine model extensions and satellite tools.
  - Ensure continuity of staff capacity.
  - Deepen integration of FPAS outputs into external communication: systematically communicate projections, scenarios, and risks to anchor expectations and enhance policy credibility.

### Communication as a Policy Instrument: Strengths and Reform Priorities
- Current communication practice:
  - BOM communicates via monetary policy decisions and press releases, Monetary Policy Report, Financial Stability Report, statistical publications, speeches, and digital platforms.
  - Communication with financial market participants is frequent and professional; bilateral exchanges are established.
  - Readability analysis indicates BOM’s publications compare favorably with peers.
- Limits and perceived gaps:
  - Forward-looking content—explicit discussion of risks, contingencies, and conditional policy responses—is more limited than in peer IT countries.
  - Communication related to exchange-rate policy and foreign exchange operations is perceived as less clear by survey respondents.
  - Concerns among survey respondents about perceived political influence highlight the need for transparent and structured communication to reinforce credibility and independence.
- Communication reform priorities:
  - Formalize an institutional communication strategy with predictable communication cycles and strong message discipline.
  - Strengthen the role of the Communications Unit in planning and narrative development.
  - Adopt a more structured, forward-looking approach to monetary policy communication and expand integrated, multi-channel outreach.
  - Institutionalize monitoring and evaluation of communication effectiveness and explicitly segment audiences.

### Overarching Policy Priorities and Expected Benefits
- Consolidation agenda:
  - Fully implement the operational framework (notably restore full-allotment 7-day bills at the policy rate).
  - Comprehensively leverage FPAS as the organizing framework for internal deliberations and external narratives.
  - Upgrade the communications strategy to be more strategic and forward-looking.
- Expected outcomes:
  - Stronger alignment across implementation, analytics, and communication would:
    - Increase the signal value of the announced policy rate.
    - Anchor inflation expectations more firmly.
    - Reinforce the credibility and effectiveness of monetary policy in achieving its inflation objective.
    - Support macroeconomic stability in an increasingly complex and uncertain global environment.

*Prepared by Leandro Medina and Valeriu Nalban; SIP/2026/080 (IMF Selected Issues Paper), completed June 18, 2026.*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026080.pdf_