Seychelles Central Bank to Keep Rate at 5% on Low Inflation Risk

LAGOS (Capital Markets in Africa)- The Central Bank of Seychelles expects to keep its key interest rate unchanged this year as prices are likely to climb at a slow pace on the Indian Ocean archipelago.

“The monetary policy rate is expected to remain at 5% in 2020, a rate that would support an interest-rate level conducive to a level of credit to the private sector that boosts economic activity, but does not introduce inflationary pressure,” Governor Caroline Abel said in an emailed response to questions.

Annual average inflation is forecast to accelerate to 2% by December, from 1.2% at the end of 2019. While the Mahe-based central bank does not have an inflation target, a rate outside 0.5% and 3.5% would raise concerns, Abel said. Inflation slowed to less than 1% in January, the lowest level in at least two years.

Seychelles introduced a monetary policy rate in January 2019 and has cut it only once since when it reduced by 50 basis points in the fourth quarter. While it’s too early to assess the impact of the framework, movements in savings and lending rates have been consistent with the key rate, the 46-year-old appointed in 2012 said.

Seychelles, with a population of about 98,000, relies on tourism and exports of seafood for foreign-exchange revenue. The central bank forecasts economic growth could decelerate to 3.5% this year from an estimated 3.9% in 2019.

“Whilst the 2020 projection is in line with the long-term trend, such forecast is exclusive of the possible impacts of the recent coronavirus outbreak,” Abel said.