r basant roi : the monetary policy stance of the bank of mauritius keynote address by mr r basant roi, governor of the bank of mauritius, at a seminar organised by the mauritius export processing zone association, pointe aux piments, mauritius, 23 april 2003. * * * president of mepza ladies and gentlemen i am pleased to be here with you this morning. i am equally pleased to have been given the opportunity to speak on an aspect of economic policy that has been for one reason or the other the subject of recurring sound - biting criticisms. let me at the outset put it clearly that i am not here to reply to the criticisms that have been leveled against the bank ’ s policy. criticisms do provide opportunities for central bankers to come out and explain their policy stands. criminologists claim that few acts of violence are committed after a good meal. this prolongs the lives of speakers. i have had a hearty breakfast this morning. i do not intend to deliver a long speech on account of my throat. the risk is that one of you might cut it. central bankers are accustomed to saying the right thing at the right moment and to leave unsaid the wrong thing at the most tempting moment. central banks, anywhere in the world, are never short of criticisms. the bank of mauritius has never been exempt of vitriolic remarks. before july 1994 when the exchange control act was suspended repeated releases of repressed emotions through random shootings of caustic remarks against the bank ’ s policies were quite common. in the wake of the liberalization of our financial system the monetary policy stance of the bank has received less appreciation than it deserves. while the objective of the monetary policy of the bank is well appreciated by some of us it is less so by others presumably because of considerations driven by self - interest. a short - term view or rather a myopic view of the bank ’ s monetary policy stance in a world economy that is highly demanding in terms of economic and financial efficiency is tantamount to losing sight of the forest because of the trees. i shall attempt to give a perspective to the monetary policy of the bank for your benefit. i view this as being important simply because a full appreciation of the bank ’ s work and results does require a perspective beyond a few months or even beyond a single year. a single day, a few months or even a year is rather a short time to really gauge what monetary policy of the bank can accomplish on a lasting

basis. monetary policy takes time to make its beneficial effects felt in any economic society. but i do also reckon that a few months or even a single month or a single day may sometime appear to be a long time. events having undesirable consequences for the economy can take place in minutes. we live in an economic society wherein the role of money is taken for granted. the basic importance of money in the economy is unwittingly overlooked. buyers and sellers, savers and investors and borrowers and lenders are, as you are aware, linked through money. it goes to say that money which links them should have our confidence if our economy has to perform well. money that keeps its value will have the confidence it deserves. as is usually said among central bankers it is the democratic right of every citizen to see that the length of a metre or the weight of a kilogramme does not vary over time. why then should the value of money change over time? clearly, the basic objective of monetary policy of the bank, which is the sole issuer of currency in the country, should be to preserve the value of money. the bank of mauritius is the nucleus in the process of money creation in the economy. it is mistakenly believed that the bank has the intrinsic power of simultaneously achieving a multiplicity of objectives. this is a gross misconception. paradoxically, there is also a common tendency for some in the exporting community to believe that inflation need not be the prime consideration of the bank. this is also an incorrect view of what should be the objective of our monetary policy. our business community and the public at large would be badly served if the bank ’ s monetary policy stance irresponsibly fuels inflation. suffice to say that inflation creates uncertainty, breeds inefficiency and makes the economy less productive. worst, it creates inequity. those who gain from inflation necessarily gain at the expense of others. in fact, the bank ’ s power to print money is limited by the leverage available to monetary policy. the bank uses this leverage to enhance the economic performance of our country. in simple terms, the bank manages liquidity in the economy - which in turns affects expenditure – in such a manner that is consistent with the capacity of the economy to grow but, as far as possible, without giving rise to inflationary pressures. monetary policy would not be doing justice to all of us if it unleashes forces that create inflation.