yandraduth googoolye : shaping the new banking landscape defining the priorities and leveraging new technology to propel the mauritian financial system forward speech by mr yandraduth googoolye, governor of the bank of mauritius, at the annual dinner for major economic stakeholders, hosted by the bank of mauritius, flic en flac, 29 november 2019. * * * your excellencies former governor d. maraye chairman of the mauritius bankers association limited chairmen and chief executives distinguished guests members of the press ladies and gentlemen it is an honour for me to welcome you tonight to this customary annual event of the bank of mauritius. this year, i will depart from the way i made my speech last year. i will not go over the bank ’ s achievements, as these have been amply reported in the media. for those who want to refresh their minds, they may wish to visit the website of the bank. our accomplishments will also feature prominently in the bank ’ s annual report which will be released shortly. we shall send you an electronic copy of the report once it is released. i am pretty sure you are looking forward to hear my message tonight. please feel free to share with me directly your comments and criticisms later. this space is too often filled by the media. it would be good, for a change, to hear about what stakeholders think. ladies and gentlemen, let me start with a statement that will be the weft of my discourse : ‘ much is happening and much will happen! ’ a look at what is happening in the world reminds me of charles dickens, whom i quote from his book ‘ a tale of two cities ’ : i quote : ‘ it was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity ’. end of quote. you will agree with me that it befits our times, especially in the light of conflicting messages that we get all the time from all sides … high inflation is worrying ; too low an inflation is upsetting! excess liquidity is dangerous, but lack of liquidity is as troubling ; the exchange rate is never favourable, whether for exporters or for importers ; the policy rate, when it is high, is not helping businesses and borrowers and, when it is low, it goes against those who want to save

important investment, and would not be a major problem. arguments that low interest rates cause problems in addition to the debate surrounding low interest rates mentioned earlier, it has been argued that the low interest rate policy allows inefficient firms to survive, leading to a decline in productivity and, consequently, a decline in the natural rate of interest. this could be called the " zombie firm argument " - - that is, the argument that low interest rates artificially keep inefficient firms alive. 16 yet another argument is that the current low interest rates are due to low interest rates in the past that brought about a " frontloading " of demand and resulted in a further decline in interest rates. 17 first of all, it needs to be noted that these arguments focus on real, not nominal, interest rates. thus, as for the first argument that the low interest rate policy allows inefficient firms to survive, leading to a decline in productivity, this is implausible given that productivity has been rising as a result of qqe. in addition, if inefficient firms were forced to exit the market because of higher interest rates, this would lead to employment issues. in contrast, japan's economy is currently facing labor shortages due to monetary easing. if inefficient firms are to be forced to exit the market, it is much better if this occurs through labor shortages and upward wage pressures. with regard to the second argument that the current low interest rates are merely the result of a " frontloading " of future demand, both production and people's incomes have been there had been claims that, due to low interest rates, inefficient firms are able to survive. for example, see " zonbi kigyo to wa hatan jotai'oi kashi'de enmei, " nikkei, february 9, 2019 and kamei katsuji, " zonbi o amayakasu nichigin, " nikkei, october 4, 2019. these referred to the following analysis indicating that the increase in the number of zombie firms is linked to the effects of lower interest rates : ryan banerjee and boris hofmann, " the rise of zombie firms : causes and consequences, " bis quarterly review, bank for international settlements, september 2018. 17 see, for example, okina kunio, kinri to keizai ( tokyo : diamond, inc, 2017 ), 174 -