The central bank of Mauritius left its benchmark interest rate steady, saying the two rate cuts earlier this year are still working their way through the economy, which is expected to shrink 12.5 percent this year, and the current monetary policy stance is deemed appropriate.

The Bank of Mauritius (BOM) left its key repo rate (KRR) at 1.85 percent after cutting it by a total of 150 basis points following cuts in March and April.

The Indian Ocean island has been hit hard by the plunge in global tourism since the outbreak of the Covid-19 pandemic, along with its export-reliant manufacturing industry, and the central bank expects household consumption and private investment to remain subdued this year.

"The global economic landscape remains fraught with uncertainty as countries continue to experience the adverse affects of the COVID-19 pandemic," BOM said.

The central bank forecast the island's economy will contract by 12.5 percent this year and then rebound and expand some 7.0 percent in 2021.

In late May the bank's governor, Harvesh Seegolam, who took over in late February, said he expected the economy to contract between 7.5 percent and 15 percent this year, revising down the bank's March forecast for growth of 2.6 percent to 2.8 percent.

In the first quarter of this year, Mauritius' gross domestic product contracted 2.0 percent year-on-year and 3.6 percent quarter-on-quarter.

Inflation in June eased to 1.7 percent from 2.8 percent in May and BOM forecast inflation of around 2.5 percent this year and about 2.0 percent in 2021, barring exogenous shocks.

After falling in March, the Mauritian rupee has been relatively stable since mid-April and was trading around 40 to the U.S. dollar today, down 9 percent this year.