Like most capitalisms in decay, the Mauritian variety is characterised by an economic squeeze on its middle class. One of the ways in which this has been happening is by the Bank of Mauritius, since the fag-end of the previous government – when there was an open war between the then-governor, Manou Bheenick and the then Finance Minister Xavier-Luc Duval, over whether to raise or cut the repo rate. In the end, thanks to some gerrymandering at the Monetary Policy Committee, Duval got his way and the repo rates were either cut or stayed the same. The MSM-led government has pretty much stuck to the same script bringing the repo rate down from 4.65% in October 2014 to 3.5 per cent since September 2017.

What this has meant is that banks have reduced the interest paid on savings deposits, hitting middle class depositors hard. According to the central bank itself, the average interest on savings paid by banks has been slashed by nearly half from 2-4% in June 2015 to a paltry 1.2-2% by July 2018. The axe taken to interest rates does not mean that the middle class has access to cheaper credit, since the average lending rates of banks have moved from between 6.25 and 8.5% in 2015 to merely 5.65-8.5%. And keep in mind, all this is happening when the inflation rate is averaging at 3.5%, well above the maximum average interest rates on savings deposits. This has put us in the absurd situation where putting your money in the bank is actually a good way of losing it and which is why the national savings rate has all but collapsed from 25% in 2003 to just 12.1% in 2017. What the middle class was doing was switching from putting their money into the banks to putting it into other high-yielding schemes such as outright Ponzi schemes like Whitedot/Sunkai or others such as the Super Cash Back Gold run by the now-defunct BAI, all ending in tears for various reasons. Another avenue was putting money into real estate, further inflating a bubble and making it all the more difficult for others to get a foot onto the property ladder.

As if this were not enough, the government post-2015 aggressively depreciated the rupee through taking down the repo rate as well as buying up foreign exchange on the local market. Since 2014, the rupee has gone from Rs30.62 to the dollar to Rs35 today. For a middle class dependent upon imports, this has meant price hikes and a further erosion of their purchasing power as well as the value of their savings.

Since 2015, the central bank has embarked on this course to encourage investments and to ease the weight of loans contracted by the big corporates. Except none of that has happened: no significant new investments and manufacturing continues to be moribund. The state is as reliant on real estate speculation as ever. Like the Brezhnevites in the old Soviet Union in the late 1970s, everyone knows that things are not working and yet no one can come up with anything other than doubling down on the dogma.

This is dangerous and is certainly not in the longer-term interests of the country. No savings means a shrinking deposit base from which banks can lend to investors and households, which in turn brings economic growth and investment to a halt. This will be a problem particularly in 2019 as the offshore sector shrinks and banks will not be able to call upon funds from global business firms as much to finance their lending and will instead become more reliant upon savings and deposits from consumers.  

Unless of course this is all wrong and the central bank is actually working on a secret plan outside the understanding of mere mortals. Unless they explain what that is, all it looks like is that the BoM is squeezing the lemon until the pips squeak.

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