Rate of Interest in Mauritius Analysis

Rate of Interest in Mauritius AnalysisChapter 1.0 Introduction1. IntroductionThe subject field aims to assess the various methods to determine the Mauritian rank of sp atomic number 18-time activity. Moreover, we shall withal effort to implement a method which is suitable for the deliverance of Mauritius.The enjoin of engage is merely remuneration for the lender with a point of view of recognize him for the interval of lending money (Edward, P.). As per Edward, a bigger repast can be attributed to those who wait. From the perspective of the borrower, the rank of evoke is defined as the price of durability. The latter(prenominal) is expensive when the prescribe of worry is high.In an article, Ross and Szeliski(1942,p.501) unless defined the ordinate of interest as being a perceptiveness of sacrificing the cash in hand in order to obtain deferred cash at a later date.A few examples of the rate of interests cited from the contain of Amarcher and Ulbrich are as follows Interest on loans (general loans),Interest judge on home mortgages and car loans (specific loans),Interest rates on bonds,Interest rates that commercial banks pay to the Bank of Mauritius.The rate of interest depends on the disposition of a loan. Since the rate of interest is equally the price of taking up a loan, the interest rate is expensive when the run a risk is high in addition if it is a long term one and vice versa. gibe to Amarcher and Ulbrich, the interest rate is made up of the real interest rate, the risk premium and the pretension adjustment. The real interest rate reflects the purchasing place of an individual while the risk premium is simply a fortune that the loan may default and the inflation adjustment refers to the waited inflation over the lifetime of the loan.1.2 Importance of the Subject MatterDespite being plainly a figure, the rate of interest carries much importance. It determines the decisions of disparate stakeholders ranging from investors to cons umers.Furthermore, the rate of interest is also relevant for the implementation of policies in an economy. The right rate of interest forget lead to appropriate decisions and policies, thus experiencing a unchanging frugal condition whereas an unsuitable rate of interest tryament only cause turmoil in an economy.Moreover, the determination of interest rate has an encumbrance on inflation and unemployment which in turn impact on the economy of Mauritius.1.3 Statement of ProblemThe primary aim shadow this theatre of operations is to top the ongoing dispute between the Ministry of Finance MOF and the governor of the Bank of Mauritius BOM.The MOF and the BOM are administered with their respective instruments to regulate the economy. While the MOF is in charge of fiscal policy, the BOM is trustworthy of modulating the monetary policy. For instance, controlling the interest rates and credit ratios are their main tools.Despite the fact that the MOF and BOM should act respecti vely, the behavior of the MOF completely overruled this fact. For example the MOF was supposed(p) to buy 100 million dollars and this will affect the money supply. In other words, the MOF is pooping his nose into someone else business.The piazza worsens even more when the governor of BOM and MOF does not agree on the similar grounds regarding the rate of interest.A repo rate of 4.65% does not fit the actual economy according to Rundheersing Bheenick (governor of the BOM). The latter confirms that if the rate of interest does not increase we will be cladding a troublesome situation in controlling inflation as Money Supply is high. However, the MOF does not seem to be worried near inflation as it met a lowest record in 2013. Thus, maintaining the similar level of interest from his standpoint is valuable. Furthermore, MOF asserts that increasing the level of interest will only decrease demand for new loans, consequently, deteriorating the riddle of excess liquidity. The MOF refe rred the situation to a scenario where we are increasing the prices of tomatoes to clear the surplus on the market.Rundheersing Bheenick justifies that maintaining the aforesaid(prenominal) level of interest rate will make the economy penetrable to shocks as it reduces savings. As a result, the economy becomes dependent on international funding. The MOF defends himself by stating that there is no relationship between savings and the rate of interest and this statement of his is based on the saying of Martin Petri being the draw of the International Monetary Fund (IMF).The faceoff between two strong financial leaders can proves to be disastrous for the economy as a whole leaving consumers among others to be a victim of their wrath. Without any hesitation, their weigh is also being termed as The Financial War of Ego where decisions are no longer implemented for the benefit of the economy but to legal injury the ego of their opponent.Moreover, Mauritius is not the sole one to be experiencing this crucial situation. Among others, Maldives is also a victim of disputes between the governor of Maldives Monetary Authority (MMA) and the attend of Finance. On one hand the MMA aimed at increasing the rate of interest to reduce government deficits, the MOF on the other hand maintained the same level of interest rates (Miadhu, 2013).However, this conflict did not arise for Seychelles. The MOF and the governor of Central Bank of Seychelles (CBS) worked cooperatively with one another. While the governor of CBS increase the rate of interests in order to reduce demand of foreign modify rates, the MOF was thinking to freeze imports of certain products for a limited period (Seychelles word Agency, 2014).Thus, in this study we will aim at setting a neutral rate of interest to unclutter the ongoing dispute as well as to protect the various stakeholders involved in this scenario. In addition, by setting up a neutral rate of interest, we expect everything to be back to no rmal where no dispute will luxuriate the image of Mauritius and encouraging Foreign Direct Investment (FDI).1.4 Research promontoryHas the interest rate been appropriately determined?1.5 Research objectivesA study of the above mentioned title would focus on the hobby aims and objectivesAn assessment of polar theories determining the rate of interests.Under this objective, we will be assessing the different theories beneath which the rate of interest is determined and we will be determining which theories scoop up suit the Mauritian economy.Determination of the neutral rate of interest.In this context, a neutral rate of interest will be set to solve the dispute of the two financial leaders and which is appropriate for the present political economy condition of Mauritius.Assessing the independence of BOM and MOF.Here, we will be studying whether the BOM and MOF act independently while making decisions as per the rule.A study of the economic factors bear upon the rate of interes t.This objective will go through the different economic factors that influence the rate of interest in Mauritius.A forecast of the interest rates for Mauritius.Forecasting the interest rates involves predicting the interest rates in the coming future.1.6 Hypothesis Testing1.7 Research Methodology1.8 Format of sphereChapter 1 IntroductionChapter 1 includes a definition of the rate of interest and its importance to the economy of Mauritius. It gives a further explanation of the problem and a brief description of what will be covered in the following chapters.Chapter 2 Literature reviewIn the context of Literature Review, we will go through theoretical and empirical evidence of determining the rate of interest. The different theories about determining the rate of interest will be analyzed and discussed.Chapter 3 Research MethodologyResearch Methodology puts antecedent the model that will be used in determining the rate of interest for Mauritius. The variables will be defined in this context and the test that will be used is described and analyzed.Chapter 4 Data showing and Analysis.Chapter 4 will convert raw information into meaningful data which will be in turn analyzed and conclusions can be drawn.Chapter 5 Recommendations and ConclusionsThis chapter aims at suggesting suitable policies for the economy to recover from the given problem and giving a conclusion about what has been studied.1.9 SummaryIn this chapter we gave an mental home about the topic that will be studied, the importance of the subject, the problem behind it and a brief explanation of what will be covered in the following respective chapters.