(Seychelles News Agency) - With Seychelles relying heavily on imports, the elevated global commodity prices with tighter monetary conditions and uncertainty in Europe, expect to lead to imported inflation in the island nation, a top government official said on Monday. 

Notwithstanding inflationary risks, the Central Bank of Seychelles (CBS) has decided to maintain its Monetary Policy Rate at 2 percent for the remaining three months of 2022, a rate that remains unchanged since the third quarter of 2021.

The central bank's board made the decision to maintain this rate last Tuesday, after taking into consideration global economic conditions. The governor of CBS, Caroline Abel, said in a press conference that these conditions are linked to the ongoing COVID-19 pandemic, the war in Ukraine, and the geopolitical tensions in Europe.

“The most pertaining global concern at the moment is the prices of commodities, fuel and inflation in general," said Abel.

She explained that the cost of fuels is still high as countries that produce this commodity have not decided on increasing production for the market, despite the fact that demands have increased. The war in Ukraine and uncertainties that surround it put pressure on food prices as Russia and Ukraine are two important exporters of food commodities. 

When talking about inflation, she outlined that global projections made for September 2022 show that inflation will remain high for the remaining quarter but it might go down in 2023, however, this relies heavily on if no major event happens that will bring about negative effects. 

In terms of the outlook for the year, the International Monetary Fund (IMF) projection of global output is at 3.2 percent compared to 6.1 percent in 2021. This comes as a result of governments phasing out assistance introduced to boost the economy in response to COVID-19, and central banks tightening monetary policy to lower inflation.

Following the increase in inflation in most emerging markets and advanced economies, the projection for global inflation by the IMF is 8.3 percent for

“With inflation that is high in many countries, major central banks in the world are increasing the interest rate. In doing so they are tightening the monetary policy and this brings about worries that the cost of production in these countries will increase which will cause the economic growth will slow down. Seychelles has loans in foreign currencies, and we have already noticed that the interests on these loans are going up," said Abel. 

Locally, inflation is expected to pick up slightly as the external price developments gradually filter into the economy. As a result, a year-on-year inflation rate of 4.5 percent is forecast for December 2022.