Central Bank of Seychelles’ Board discusses |03 January 2015

Seychelles’ economic performance, outlook of global economy

The relevance for the Seychelles economy, namely the economic performance and outlook of the
global economy were discussed during the Central Bank Board’s fourth and final monetary policy for the year 2014.

A communiqué from the Central Bank of Seychelles (CBS) states that during the December 29, 2014 meeting, the Board examined the economic and monetary policy decisions of key world economies namely the United States of America as the world’s biggest economy, but more importantly, the Eurozone which is the country’s main trading partner in terms of exports of both goods and services. Developments in the international commodity markets were also reviewed, whereby food and oil prices both maintained a declining trend. Generally, both food and oil prices fell in November 2014.

The Board was apprised of the latest domestic developments and published economic data. Based on these results, the Board considered the potential outcome for the quarter and prospects for the coming year. The performance of key economic sectors namely tourism were analysed.

The latest available data, as at December 21, 2014 shows that visitor arrivals were 0.8 per cent above that of the same period in 2013. The Seychelles rupee generally maintained a depreciating trend vis-à-vis the major international currencies during the fourth quarter and the year as a whole. Weaker-than-forecasted tourism receipts coupled with higher domestic demand were identified as the main factors for the increased pressure in the foreign exchange market.

The foreign exchange backlog which emerged as a result was cleared in October following a further tightening of monetary policy in the fourth quarter of 2014. The situation in the foreign exchange market is now normalised with the recent movements in the exchange rate reflecting the prevailing economic fundamentals.

According to the Consumer Price Index (CPI), the inflation outcome was relatively benign during the fourth quarter and overall in 2014. Given, the significant pass-through of the exchange rate to domestic prices, the Bank is particularly concerned of the potential second round effects of the weaker rupee. Data from the third release of the Producer Price Index Manufacturing (PPIM) which measures inflation from the perspective of the producers in the manufacturing industry continues to show rising cost pressures.

Having reviewed all available information and deliberated on the prospects for the coming months as well as risks which might impact the Bank’s primary objective of price stability, the Board unanimously approved to maintain the current monetary policy stance in the first quarter of 2015. The decision is based on the premise of inflationary pressures in the short term which needs to be countered. As usual, the Central Bank remains vigilant and actively monitors developments locally as well as internationally and stands ready to adjust its policies should the need arise.