The Monetary Policy Rate
In January 2019, the monetary policy framework transitioned from reserve money targeting to an interest rate-based framework whereby the focus of monetary policy shifted from indirectly influencing the intermediate target of money supply growth to guiding short term interest rates. This was done through the introduction of a Monetary Policy Rate (MPR).
With the discontinuation of reserve money as the operating target, the MPR serves as the key policy variable used for signalling the prevailing monetary policy stance. This is complemented by the interest rate corridor, which adjusts accordingly to changes in the MPR. The MPR lies within the interest rate corridor, with the Standing Deposit Facility and the Standing Credit Facility serving as the floor and ceiling respectively. The interbank lending rate – the average rate at which banks lend funds to one another – is expected to fluctuate between the floor and ceiling, with adjustments impacted by any shifts in the MPR. In addition, the direct monetary policy tool, Minimum Reserve Requirement (MRR), remains a supporting policy indicator.
The MPR is set at a level which is consistent with the desirable general price level deemed stable for the Seychelles economy in the medium term. It is formulated based on analyses and projections of inflation and other key macroeconomic variables, determined by the Bank's macroeconomic modeling and forecasting framework which applies the fundamental principles of economic theory. The MPR will be reviewed and published on a quarterly basis following Board approval.
As part of its efforts to enhance the quality of communication on monetary policy, the Bank will continue to improve its dialogue with all relevant stakeholders. This will be mainly achieved through quarterly press communiqués and press conferences subsequent to the Board’s decision on monetary policy.
The responsibility for formulating and implementing monetary policy rests with the CBS Board. To ensure the effective segregation of responsibilities and to place due emphasis on monetary policy decisions taken at Board level, the Board decided to replace the Monetary Operations Committee (MOC) by the Monetary Policy Technical Committee (MPTC). Nonetheless, the main responsibility of the committee remains to consider, advise and decide on issues primarily relating to the formulation and implementation of monetary policy within the general guidelines determined by the Bank's Board.