Mauritius’ Central Bank Advises Banks To Reduce Exposure To Euro Zone

Mauritius’ central bank advised domestic lenders to minimize their exposure to the euro zone as the currency slumps against the rupee, said Governor Rundheersing Bheenick.

“I am very worried,” Bheenick was quoted as saying by the Port Louis-based newspaper. Local lenders should take “extreme prudence in all their transactions with the euro zone.”

The Indian Ocean island nation’s rupee strengthened 9.3 percent against the euro in the past year, Bheenick said. A weak euro and lower demand from Europe, embroiled in a debt crisis, is hurting exports income and widening the trade gap, he said.

“There is a structural imbalance between exports and imports,” the governor said. “We import almost twice of what we export. Imports are billed up to 60 percent in dollar.”

Export income is about 60 percent euro-denominated, according to Week-End newspaper. The crisis has cost the island- nation a 1.4 percentage points drop in growth, now forecast at 3.6 percent, Finance Minister Xavier Luc Duval said on May 30.

“We have limited scope” of intervention, Bheenick said. “It isn’t in the national public interest to peg the rupee to the euro.” Such a measure will only result in the population becoming poorer and social instability, according to Bheenick.
The central bank has initiated the process of currency diversification, he said. The weight of the dollar, the pound sterling and the euro in foreign currency reserves has dropped to less than 50 percent at the end of May compared with 80 percent in 2007, Bloomberg reported.