The monetary policy is to remain relaxed for the first quarter of 2023, as decided by the board of the Central Bank of Seychelles (CBS) on Thursday, December 29, 2022.
As such, the Monetary Policy Rate (MPR) is to be maintained at 2.0 percent, with interest rates on the Standing Deposit Facility (SDF) and Standing Credit Facility (SCF) also remaining unchanged, at 0.5 percent and 3.5 percent respectively.
The Minimum Reserve Requirement (MRR) remains unchanged at 13 percent of applicable deposit liabilities.
During a press briefing on Friday December 30, 2022, CBS Governor Caroline Abel noted that the decision is based on consideration of external developments including inflation which remains a concern globally, monetary policies in advanced economies and markets important to the domestic economy, global economic output, and oil and food prices which are expected to remain high amid uncertainty.
Higher inflation has resulted in tighter monetary conditions in emerging markets and advanced markets in 2022, and while foreign inflation is expected to gradually subside this year, projections indicate that it is still expected to remain above target. Coupled with the adverse effects of the Russia-Ukraine war which have impaired economic conditions, an overall contraction in global economic growth is anticipated. These factors influence domestic prices, considering the import channel.
On the domestic front, the positive performance of the tourism industry continued to support economic activity. In the third quarter of 2022, higher tourist arrivals also meant higher earnings. The sector raked in €238 million representing a 2.7 percent increase from the second quarter, and overall increase of 39 percent from the third quarter of 2021.
Tourism earnings in 2022 were higher than even pre-Covid levels, as indicated by continued positive tourism performance in the final quarter of 2022.
Overall, throughout last year, earnings from the sector from January to November amounted to €849.4 million, a 96 percent increase from the same period in 2021.
As for the second pillar of the economy, the fisheries sector which helped to carry Seychelles through the pandemic, the third quarter of 2022 saw lower production of canned tuna, however, the value of exports was higher.
“The positive economic activity of the tourism sector has resulted in positive elements in the production in the economy,” Ms Abel noted.
An increase in production of spirits, construction blocks and fish catch increased over 2022, as did data traffic as government pushes on with its digital economy agenda.
Speaking about the price dynamics, Governor Abel noted that the inflation rate in the domestic economy was at 2.6 percent in November, a slight uptick of 0.3 percent from October.
“Based on our information, we predict that inflation was at 2.9 percent for the fourth quarter, compared to 2.6 percent in the third quarter,” she added.
An important consideration for the board in deciding on the monetary policy are exchange rates, interest rates and credit growth. According to Ms Abel, despite a slight depreciation in the Rupee in August, September and October, the local currency remains relatively stable against major currencies. The weakening was a result of increased demand for imports ahead of the festive season, coupled with elevated international commodity prices.
Additionally, the CBS has observed an increase in the stock of local currency credit, with private sector credit increasing by 4.9 percent, or R426 million in November 2022 alone, as compared to the November 2021. Foreign exchange loans have however reduced by 16 percent within the same month.
In concluding, Governor Abel highlighted the fact that the CBS board, despite deciding upon a relaxed, accommodative monetary policy for the first quarter of 2023, may in three months change or adjust the policy should there be any changes.
Source: Seychelles Nation
