Country Report Mauritania January 2011

The domestic economy: Inflation is manageable despite the ougiya's weakness

The IMF's recently published review of performance under the extended credit facility (ECF) noted that consumer price inflation had accelerated to 6.9% year on year in August 2010, from 5% in December 2009. However, the pace of price rises might have been quicker still, given the increase in global prices for food-which accounts for 53% of the consumer price basket-and energy, as well as the depreciation of the local currency, the ouguiya, by 9% against the US dollar over the period. Moreover, the Banque centrale de Mauritanie (BCM, the central bank) reduced the repurchase (repo) rate from 12% to 9% in November 2009-the first change to the repo rate since October 2007-which the IMF estimates had a statistically significant effect on the stock of credit to the private sector. In other words, the loosening of monetary policy at the end of 2009 directly led to an increase in inflation. This also indicates that, despite the shallow banking sector, BCM policy holds influence over inflationary fundamentals. The BCM has said that it will target inflation of around 5% in 2011.

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