While appreciation may help us to contain inflation, it may also lead to a loss of international competitiveness. Similarly, a depreciation of the currency, while being beneficial to the export-oriented sectors, would also have potential inflationary consequences for the rest of the population and for the wider economy.
In terms of macroeconomic policies, there is a policy trade-off between the extent of exchange rate adjustment and the inflation rate. The way forward for a small open economy like Mauritius is for it to aim to become more competitive through the achievement of real productivity gains. Long-term competitiveness depends not on exchange rate changes but on productivity growth.