Mauritius Raises Key Rate to 4.75%: What It Means for You

On 20 May 2026, the Monetary Policy Committee (MPC) of the Bank of Mauritius unanimously voted to raise the Key Rate by 25 basis points, from 4.50% to 4.75%. This is the highest borrowing cost since 2013. It is also the second hike under the current government: the rate was lifted from 4.00% to 4.50% in February 2025, and now rises again, driven by rising imported inflation, a deteriorating global outlook, and the cascading effects of the Middle East conflict on energy and freight costs.

The Forces Behind the Hike

Mauritius imports nearly all its energy and a large share of its food. The ongoing Middle East war has disrupted tanker transits through the Strait of Hormuz, driving crude oil and freight costs sharply higher. The IMF now projects global inflation at 4.4% in 2026, a 0.6 percentage point upward revision from January, and those pressures are landing directly on local prices.

Year-on-year inflation in Mauritius jumped from 2.7% in March to 3.6% in April 2026, led by restaurants and hotels (+11%), transportation (+7.5%), and housing and utilities (+3.9%). The Bank of Mauritius now projects average headline inflation at 5.5% for 2026, well above its 2-5% target. The MPC also warned that if the conflict intensifies, second-round effects on transport, utilities, and food processing could push prices even higher.

Growth Takes a Hit

Real GDP growth has been revised down to 2.8% for 2026, from 3.3-3.5% projected just three months ago and below the 3.2% recorded in 2025. Air tourist arrivals fell 8% in April year-on-year, supply chains remain disrupted, and fuel and electricity costs are eroding household purchasing power across hospitality, agriculture, construction, and manufacturing.

The Real Cost for Mauritians

The most immediate impact falls on households with variable-rate debt. Average monthly household spending was already expected to rise to MUR 45,000 in 2025, with inflation projected to reach 5.5% on average through 2026 under the Bank of Mauritius baseline. Now, mortgage repayments rise further: on a Rs 5 million home loan, a 25 basis point increase adds approximately Rs 10,400 to Rs 13,000 in annual interest. Personal loans, credit cards, and car financing all become more expensive. With the Mauritian rupee already down 4.14% against the US dollar over the past 12 months, imported fuel, food, and goods cost more with every passing month.

SMEs are equally exposed. Tighter margins and greater reliance on short-term credit make rising borrowing costs a real threat to investment and employment. Tourism and construction face additional headwinds as project financing and operating costs climb.

There is one silver lining: savers and retirees holding fixed deposits will see better returns, providing some relief to those living on passive income.

Looking Ahead

The Bank's baseline scenario assumes the Middle East conflict resolves by end of June 2026. If it does, inflation should ease through 2027 and further rate hikes become less likely. If the conflict persists, the Bank may have no choice but to act again.