How Banking Spreads Hurt Mauritian Citizens and Entrepreneurs — And How to Fix Them
Opinion
By Samad Ramoly
The chart below measures the interest rate spread, representing the percentage-point difference between a central bank’s benchmark policy rate and the average prime lending rate (PLR) charged by commercial banks. This metric serves as a direct indicator of monetary policy transmission efficiency and financial sector friction. A wider spread indicates that the central bank’s efforts to lower borrowing costs are losing momentum before reaching the real economy, resulting in an expensive cash premium for local businesses and consumers.
Sources: Bank of Mauritius. 2. European Central Bank. 3. Bank of Botswana
Unlike Botswana — where the central bank actively stepped in with strict regulatory directives to cap prime lending rates and shield consumers—the Bank of Mauritius allows market forces to determine commercial margins. Without regulatory intervention to force compression, commercial lending rates remain structurally high.
The Solution: A Two-Pronged Monetary Strategy
To break this cycle, Mauritius must pivot to a bold framework that defends the currency while directly attacking banking inefficiency:
* Increase the Repo Rate:Raising the central bank baseline rate will defend the Mauritian Rupee, curb capital flight, attract foreign investment, and cool imported inflation—instantly protecting citizen purchasing power and relieving the foreign exchange crunch for businesses.
* Cap the Commercial Interest Spread:To ensure that higher base rates do not translate into predatory lending costs for local entrepreneurs, the Bank of Mauritius must emulate Botswana’s regulatory playbook and legally cap the absolute spread that commercial banks can charge above the policy baseline.
This dual approach aggressively compresses the uncompetitive 4.25% banking margin, forcing local banks to absorb the structural friction instead of passing the bill to the Mauritian public.
Mauritius Times ePaper Friday 21 August 2026
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