According to former Finance Minister Rama Sithanen, the rupee lost its value rapidly immediately after the Budget. He blames banks for using the forward rate instrument over a very short term (up to 24 hours) for purchases and sales of foreign currencies. What about it?
This practice is not new. It is one of the tools available to banks to preserve or increase their margins, but also to cover their risks and liquidity needs. However, the abuse of currency futures can lead to systemic risk within the financial system, defaults or liquidity problems.

Can you explain to us the forward rate and spot rate mechanism and their impacts on the supply of foreign currencies, but also on the exchange rate of the rupee against other currencies?
The forward rate is the exchange rate set today for a transaction that will take place on a specified future date. It is a financial contract that locks in the exchange rate for a future transaction. Conversely, the spot rate is the current exchange rate at which one currency can be exchanged for another for an immediate transaction. This helps manage risks related to exchange rate fluctuations, thus ensuring better economic and financial stability. The abuse of hedging by foreign exchange providers such as management companies, BPO or the hotel sector, consists of protecting themselves against the volatility of exchange rates, allowing them a certain budgetary planning to pay current expenses expressed in rupees and thus maintain a margin on their currencies. However, abuse or speculation on future exchange rate movements can impact supply and demand.

What was the movement of the rupee against the major currencies?
In 10 years, the slide of the rupee is respectively 37% against the dollar, 21% against the euro and 16% against the pound sterling.

The Bank of Mauritius would come with “guidelines” to put things in order. Is this the way to go?
It goes without saying that the regulatory institution regulates the use of financial products and in our case that of “forex forward” in order to limit abuse and contain their impact.

What do you recommend to reverse the trend?
We need greater economic diversity. We must reduce the country's dependence on imports and promote high value-added exports. This requires a budgetary policy favoring the promotion of new sustainable sectors of activity, creating value and promoting employment and conservation, or even the repatriation of the Mauritian diaspora. At the same time, we need greater economic openness via more public-private partnerships promoting innovation, efficiency and the maintenance of projects over time. Likewise, there is a need for better supervision and greater transparency in the use of foreign exchange tools by banks or exchange agents.

Leave a reply below

Your email address will not be published. Required fields are marked *


Contact Business

Captcha Code