Posted at 11.14.2018
Chapter 1. 0: Introduction
The study seeks to assess the different solutions to determine the Mauritian rate of interest. Moreover, we will also try to implement a method which is suitable for the current economic climate of Mauritius.
The interest is only remuneration for the lending company with a point of view of satisfying him for the interval of financing money (Edward, P. ). According to Edward, a bigger food can be related to those who hold out. From the perspective of the borrower, the rate of interest is defined as the price of durability. The latter is expensive when the rate of interest is high.
In an article, Ross and Szeliski(1942, p. 501) further described the interest as being a preference of restricting the cash in hand in order to acquire deferred cash at a later time.
A few examples of the speed of hobbies cited from the book of Amarcher and Ulbrich are the following:
The rate of interest depends on the nature of financing. Since the rate of interest is equally the price of taking up financing, the interest is expensive when the risk is saturated in addition if it's a long-term one and vice versa.
According to Amarcher and Ulbrich, the interest is made up of the real interest, the risk superior and the inflation modification. The real interest rate reflects the purchasing electric power of a person as the risk premium is simply a probability that the loan may default and the inflation modification identifies the expected inflation in the duration of the loan.
1. 2: Importance of the Subject Matter:
Despite being only a shape, the rate of interest bears much importance. It decides the decisions of disparate stakeholders which range from shareholders to consumers.
Furthermore, the rate of interest is also relevant for the execution of policies in an economy. The proper interest will lead to appropriate decisions and policies, thus experiencing a stable monetary condition whereas an unsuitable rate of interest is only going to cause turmoil within an economy.
Moreover, the determination of interest impacts inflation and unemployment which impact on the current economic climate of Mauritius.
1. 3: Affirmation of Problem:
The primary goal behind this research is to solve the ongoing dispute between the Ministry of Fund [MOF] and the governor of the lender of Mauritius [BOM].
The MOF and the BOM are administered with their particular instruments to regulate the economy. As the MOF is in charge of fiscal plan, the BOM is accountable of modulating the financial policy. For instance, controlling the interest rates and credit ratios are their main tools.
Despite the actual fact that the MOF and BOM should action independently, the habit of the MOF completely overruled this simple fact. For example; the MOF was supposed to buy 100 million us dollars and this will affect the amount of money supply. In other words, the MOF is pooping his nasal area into someone else business.
The situation worsens even more when the governor of BOM and MOF does not agree on the same grounds regarding the rate of interest.
A repo rate of 4. 65% does not fit the actual economy relating to Rundheersing Bheenick (governor of the BOM). The latter confirms that if the interest does not increase we are facing a bothersome situation in handling inflation as Money Supply is high. However, the MOF will not seem to be worried about inflation as it fulfilled a lowest record in 2013. Thus, preserving the same degree of interest from his standpoint is valuable. Furthermore, MOF asserts that increasing the amount of interest will only decrease demand for new lending options, consequently, deteriorating the problem of unnecessary liquidity. The MOF referenced the problem to a scenario where we live increasing the prices of tomato vegetables to clear the surplus on the market.
Rundheersing Bheenick justifies that preserving the same degree of interest rate can make the economy vulnerable to shocks as it reduces savings. As a result, the current economic climate becomes dependent on external money. The MOF defends himself by saying that there is no romance between savings and the interest and this affirmation of his is dependant on the saying of Martin Petri being the head of the International Monetary Finance (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 always a victim of the wrath. Without the hesitation, their issue is also being referred to as "The Financial Battle of Ego" where decisions are no more executed for the advantage of the economy but to hurt the ego of these opponent.
Moreover, Mauritius is not the only real someone to be experiencing this vital situation. Among others, Maldives is also a victim of disputes between the governor of Maldives Monetary Specialist (MMA) and the Minister of Finance. On one hand the MMA aimed at increasing the interest to reduce authorities deficits, the MOF on the other hands taken care of the same level of interest levels (Miadhu, 2013).
However, this conflict did not arise for Seychelles. The MOF and the governor of Central Lender of Seychelles (CBS) worked well cooperatively with one another. As the governor of CBS increased the speed of interests to be able to reduce demand of foreign exchange rates, the MOF was thinking to freeze imports of certain products for a restricted period (Seychelles Reports Agency, 2014).
Thus, in this review we will purpose at preparing a neutral rate of interest to solve the ongoing dispute as well as to protect the various stakeholders involved with this scenario. Furthermore, by establishing a neutral rate of interest, we expect everything to be back to normal where no dispute will ruin the image of Mauritius and pushing Foreign Direct Investment (FDI).
1. 4: Research Question:
Has the interest rate been appropriately identified?
1. 5: Research goals:
A analysis of the above mentioned title would focus on the following aims and targets:
Under this purpose, we are assessing different theories under that your interest is determined and we will be determining which theories best suit the Mauritian current economic climate.
In this context, a neutral rate of interest will be placed to resolve the dispute of the two financial market leaders and which is suitable for today's economics condition of Mauritius.
Here, we are studying whether the BOM and MOF work separately while making decisions according to the rule.
This purpose will proceed through the different economical factors that influence the rate of interest in Mauritius.
Forecasting the interest levels includes predicting the rates of interest in the approaching future.
1. 6: Hypothesis Screening:
1. 7: Research Technique:
1. 8: Format of Research:
Chapter 1: Introduction
Chapter 1 includes a definition of the interest and its own importance to the overall economy of Mauritius. It gives a further explanation of the situation and a short description of exactly what will be protected in the following chapters.
Chapter 2: Literature review
In the framework of Literature Review, we will proceed through theoretical and empirical proof determining the rate of interest. The different ideas about identifying the interest will be examined and mentioned.
Chapter 3: Research Methodology
Research Methodology sets forward the model that'll be used in deciding the interest for Mauritius. The parameters will be described in this context and the test which will be used is identified and analyzed.
Chapter 4: Data Presentation and Analysis.
Chapter 4 will convert fresh data into meaningful data which will be in turn examined and conclusions can be attracted.
Chapter 5: Suggestions and Conclusions
This chapter aims at suggesting suitable procedures for the current economic climate to recover from the given problem and offering a conclusion about what has been examined.
1. 9: Brief summary:
In this section we offered an intro about this issue that'll be studied, the value of the topic, the problem behind it and a short explanation of what will be protected in the following respective chapters.