Blog: Biased financial market
It's official that Mauritius will grow by only 3.2% this year. While personally I believe this number is very good compared to the insignificant GDP growth in developed economies such as India, United States or even France, the finance minister was not very satisfied with it.http://www.lematinal.com/economie/18913-Mauritius-finmin-says-to-buy-100-mln-in-fx-to-weaken-rupee.html), we have just found out that the finance minister has intervened in the local financial market and manipulated the USD/MUR rate. While most people are more concerned about the brawl between the BoM and the finance minister, we are all ignoring the real issue. A political entity has just used his position of power to manipulate the financial market, instead of letting it float freely as it was meant to be.
The BoM was setup as an independent entity that has the sole responsibility of controlling the monetary policies of Mauritius, WITHOUT any dependance on the current political party running the government. However this is not what we saw last 19th October when the Finance minister used his power and your tax money to intervene in the market. His “panicked” reaction to our GDP growth pushed him to buy 100 million worth of USD through commercial banks, completely bypassing the safeguard set in place by the BoM. This manipulation not only proves that the local financial market is in fact in control by the few elites in the current political party but the fact that any finance minister can come and manipulate the local exchange rate for the personal benefit of the current political party and its stakeholders.
Technically, the current finance minister or any finance minister cannot compete against the plethora of financial data and analysis that is at the disposition of BoM. The local exchange rate is meant to be freely floated, without any external manipulation by any political party. Whatever the reasoning behind this manipulation, its just seems to me that the Finance minister has had an ego spike, especially after he was awarded the Finance minister of the year (http://www.lematinal.com/economie/18770-Africa-Investor-Awards-Xavier-Luc-Duval-proclame-ministre-des-Finances-2012.html).
With scary stories such as hyperinflation in Iran due to a stronger dollar (http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/04/hyperinflation-finally-arrives-in-iran/) or South Africa (http://www.businessinsider.com/south-africas-currency-is-plunging-as-spreading-strikes-shut-down-its-economy-2012-10) we just hope Mauritius does not follow the same trend. Just last February 2012, USD/MUR was Rs 27.5, last Friday, one dollar was sold at Rs 30.