Beyond Currency Intervention: Mauritius Charts Path to Rupee Resilience Through Economic Fundamentals

As pressure on the Mauritian rupee continues to raise concerns about purchasing power, import costs and the country’s vulnerability to external shocks, the policy debate is shifting beyond short-term foreign-exchange intervention. Can Mauritius sustainably strengthen its currency without undermining its export competitiveness? According to the Bank of Mauritius and economist Dr Amit Achameesingh, the answer lies not in defending a particular exchange rate level but in strengthening the underlying economic fundamentals supporting the rupee—including productivity, foreign-exchange earnings, fiscal credibility, investment and a more efficient foreign-exchange market.

A stronger rupee may appear desirable for a country heavily dependent on imported food, fuel, machinery and other essential goods. However, in a small and highly open economy such as Mauritius, currency strength represents a delicate balancing act. An excessively weak rupee increases import costs and fuels inflation, while an excessively strong one risks making exports and the tourism sector less competitive.

The Bank of Mauritius cautions against reducing the debate to the rupee’s nominal value against the US dollar.

“A ‘strong’ currency is generally understood to be one capable of maintaining or increasing its value over time against a benchmark currency, such as the US dollar, or a basket of currencies,” the Bank explains.

However, under Mauritius’s floating exchange-rate regime, the currency’s value is determined primarily by supply and demand in the foreign-exchange market.

“For this reason, the macroeconomic policy mix matters. Policies need to support a broadly stable currency capable of preserving the purchasing power of households and businesses,” the BoM stresses.

This consideration is particularly relevant for Mauritius given the economy’s heavy dependence on imports. “A significant share of the goods we consume—including food, fuel, intermediate goods and capital equipment—is sourced from abroad. Consequently, exchange rate volatility can be transmitted to domestic prices relatively quickly.”

But appreciation carries its own risks. According to the Bank, “a sharp depreciation of the rupee may lead to an immediate increase in the cost of living, while excessive appreciation can undermine export competitiveness and reduce tourism earnings.”

Resilience Rather Than Strength

Economist Dr Amit Achameesingh reaches a similar conclusion, arguing that the policy objective itself requires proper definition.
“A stronger rupee is not necessarily synonymous with a stronger economy,” he states. “The objective should be a stable, credible and fundamentally appropriately valued currency, rather than an administratively strong rupee.”

For Dr Achameesingh, focusing solely on how many rupees are required to purchase a dollar provides an incomplete picture.

“The appropriate benchmark, therefore, is not the nominal exchange rate alone, but rather the real effective exchange rate, relative productivity, inflation differentials, external balances, capital flows and investor confidence,” he explains.

“A credible currency is one whose value is broadly consistent with economic fundamentals and in which households, businesses and international investors retain confidence.”

His conclusion is straightforward: “The objective should consequently be currency resilience rather than currency strength.”

The Bank of Mauritius similarly indicates that it does not seek to defend any predetermined value for the currency. “The Bank does not target a particular exchange rate level, but rather focuses on preventing excessive volatility in either direction and keeping inflation expectations anchored,” it states. “That is what protects the rupee’s real value—what it can actually buy—for the ordinary Mauritian family and for businesses seeking to plan and price with confidence.”

Mauritius maintains no exchange controls, and the rupee is classified as a floating currency. The BoM notes that its interventions in the foreign-exchange market are therefore not intended to determine where the rupee should trade.

“The Bank does not seek to influence a specific exchange rate level through its operations. Foreign exchange interventions are conducted as and when required to inject liquidity into the domestic market, for instance as was done during the COVID period, or to smooth out any excessive volatility in the exchange rate.”

Monetary Policy Cannot Accomplish This Alone

This distinction matters because pressure on the rupee often generates calls for central bank intervention. Yet the BoM acknowledges that the long-term trajectory of the currency cannot be determined by monetary policy alone.

Domestically, the exchange rate is connected to “the country’s economic fundamentals, including the current account, productivity, demographics and competitiveness, as well as the country’s macroeconomic policy mix—fiscal, monetary and financial sector policies.”

International developments add another dimension of pressure. Global currency movements, commodity prices, capital flows and changes in investors’ risk appetite can all influence the rupee. “These factors cannot be addressed through monetary policy alone,” the Bank states.

Central bank action nevertheless remains important for anchoring inflation expectations, limiting second-round price effects and ensuring orderly functioning of the forex market.

“The country also aims to maintain comfortable levels of foreign exchange reserves, which provide protection against external shocks and support confidence in the rupee. Over the longer term, the resilience of the rupee will depend on a combination of sound monetary policy and continued economic reforms that enhance productivity, diversify exports and strengthen external balances,” the BoM says.

For Dr Achameesingh, these structural weaknesses are precisely where greater attention is required. He identifies “fiscal pressures, the trade imbalance, relatively weak productivity and economic growth, external financing requirements and institutional confidence” among the factors exerting pressure on the currency.

In the immediate term, however, he believes monetary conditions have assumed greater importance amid heightened geopolitical uncertainty and disruption around the Strait of Hormuz.

“A prolonged disruption to one of the world’s most important energy corridors could keep global oil and shipping costs elevated for an extended period,” he warns. “This would generate a difficult combination of higher inflation and weaker global growth.”

For an import-dependent island economy, higher energy and transport costs can quickly translate into increased demand for foreign currency and additional inflationary pressure domestically.

From Consumption to Production

If foreign-exchange intervention cannot sustainably strengthen the rupee, what can?

For Achameesingh, the first structural shift Mauritius requires is fundamental: the economy must produce and export more.

“Mauritius must transform from an increasingly consumption- and import-dependent economy into a productivity- and export-driven economy,” he argues.

He points to “renewable energy, advanced manufacturing, digital services, artificial intelligence, fintech, agritech, marine biotechnology and the wider blue economy” as sectors toward which greater investment could be directed.

The objective is not merely economic diversification for its own sake. Increasing the country’s capacity to export goods and services would generate additional foreign currency and reduce the structural imbalance between forex demand and supply.

His second proposal is therefore to establish what he describes as “a productivity- and foreign-exchange-earning investment strategy.”

“Credit allocation, taxation and public investment should increasingly favour businesses that generate productivity gains, exports, technology transfer and higher-value employment. Mauritius must increase its capacity to earn foreign currency rather than simply attract foreign capital,” Dr Achameesingh says.

Fiscal and Institutional Credibility

Dr Achameesingh places a third pillar alongside production and exports: confidence.

“Reinforce fiscal and institutional credibility. A credible medium-term fiscal framework, disciplined public investment, transparent institutions and predictable regulation would lower the country’s risk premium and strengthen investor confidence,” he states.

“Ultimately, a resilient rupee requires stronger productive capacity, sustainable external balances and institutional credibility,” he emphasises.

Confidence also matters because exchange rates are influenced not only by existing economic conditions but by expectations. Businesses, investors and households make decisions about whether to hold, buy or sell currencies partly according to what they anticipate will happen next.

Improving Foreign-Exchange Market Functioning

At the institutional level, the Bank of Mauritius indicates that reforms to the domestic foreign-exchange market are already underway.
It points to measures introduced since December 2024 “geared towards tackling distortions in the domestic FX market as well as harmonising the rules governing the operations of commercial banks and foreign exchange dealers”.

“These measures led to a noticeable improvement in FX flows and dampened volatility in the domestic market,” according to the Bank.

Greater transparency represents another component. The BoM states that it publishes daily information on exchange rates and transaction volumes involving customers and commercial banks, alongside monthly and periodic data through its statistical and policy reports.

Hedging products are also available through commercial banks, although the Bank notes that they are currently offered to “sophisticated customers” to manage currency risks.

Mauritius is also looking beyond traditional dollar-denominated settlement. “The Bank is also working towards broadening the range of settlement options available to Mauritian economic operators for their international trade transactions,” it says.

Consequently, it has pursued local-currency settlement arrangements with central banks of major trading partners, with the objective of providing businesses with more options for international transactions.

“Taken together, these initiatives are expected to progressively have a favourable impact on the domestic FX market,” the BoM says.

Strengthening the Fundamentals Behind the Rupee

For Dr Achameesingh, however, improving foreign-exchange market functioning must go hand in hand with strengthening the competitiveness of the real economy.

Mauritius should not, he argues, attempt to make exporters or tourism operators bear the cost of an artificially stronger currency.

“The competitiveness of exporters and tourism operators should instead be strengthened through productivity-enhancing policies: lower energy and logistics costs, better infrastructure, digitalisation, access to appropriate financing, skills development, technology adoption and movement towards higher-value products and services.”

“This is a crucial distinction,” he adds. “Mauritius should seek to strengthen the productive capacity behind the rupee, rather than simply strengthen the rupee itself.”

Reducing unnecessary import dependence would also help alleviate demand for foreign currencies. Dr Achameesingh specifically identifies imported energy and consumption goods as areas where greater domestic resilience could make a difference.

“The most sustainable route to currency stability is therefore to increase the economy’s capacity to generate foreign-exchange earnings while reducing unnecessary dependence on imported energy and consumption goods,” he states.

The Risks of Artificially Defending the Currency

Both the economist and the central bank ultimately converge on one important point: attempting to force the rupee to an exchange rate that economic fundamentals cannot support would carry its own risks.

“The wrong approach would be to defend a predetermined exchange-rate level through excessive foreign-exchange intervention, depletion of international reserves, excessively restrictive interest rates or administrative controls,” Dr Achameesingh warns.

Such a policy could initially make imports cheaper and create an impression of stability. However, it could also weaken the sectors responsible for earning the foreign exchange required to sustain that rate.

“An artificially strong currency can create an illusion of stability while progressively damaging export competitiveness, tourism receipts and domestic production,” he says.

“It can also make imports artificially cheap, thereby worsening the trade imbalance and increasing the economy’s underlying dependence on foreign currency,” he asserts.

The Bank’s strategy similarly views foreign-exchange reserves as protection against external shocks rather than a permanent mechanism for supporting the exchange rate.

“The rupee has stabilised in recent periods and is increasingly reflecting underlying market forces, supported by healthier foreign exchange inflows especially from tourism and financial services,” says the BoM.

According to the BoM, US$4.8 billion in foreign-exchange inflows have been registered on the domestic market since the beginning of 2026, supported particularly by tourism and financial services. “Over the next three to five years, continued diversification and strengthening of these inflows will be key to reinforcing the currency’s resilience.”

It also indicates that its interventions have become significantly less frequent, amounting to US$65 million since the start of the year to reduce volatility. “Recently, the need for intervention has drastically diminished. Since the beginning of 2026, against the background of heightened global uncertainty, the Bank has intervened for a total amount of US$65 million to reduce the rupee’s volatility. The Government and the Bank have implemented measures that seek to improve economic fundamentals, address demand pressures and improve market functioning,” it declares.

“The results of these adjustments are already visible, including lower goods imports and an improved current account deficit,” the Bank says.

Foreign-exchange reserves will nevertheless continue to provide an important safety net during periods of international instability.

“However, the objective is for reserves to serve primarily as a buffer rather than a source of regular market support, with the strength of the rupee increasingly anchored in sustainable economic performance.”

Ultimately, the debate over a stronger rupee may therefore be less about the currency itself than about the economy standing behind it. A sustainable improvement cannot simply be engineered on the foreign-exchange market. It requires Mauritius to produce more efficiently, earn more abroad, manage its public finances credibly, attract productive investment, reduce avoidable import dependence and maintain confidence in its institutions.

As Dr Achameesingh puts it: “A strong rupee should ultimately be the consequence of a stronger Mauritian economy and not a substitute for one.”

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