Botswana’s central bank keeps Bank rate unchanged at 5.5 percent

GABORONE (Capital Markets in Africa) – The Bank of Botswana Bank Rate was maintained at 5.5 percent at the Monetary Policy Committee (MPC) meeting held on December 13, 2016. This was in view of the positive outlook for price stability, with inflation forecast to be within the Bank’s 3 – 6 percent medium-term objective range.

The Bank stated that the current state of the economy and both the domestic and external economic outlook, including the inflation forecast, suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the Bank’s medium-term objective range of 3 – 6 percent. Furthermore, the monetary policy is also aligned with the need to safeguard financial stability. In this regard, credit growth is considered to be at a sustainable level.

The Bank estimated real GDP have contracted by 0.3 percent in the twelve months to June 2016, compared to growth of 3.1 percent in the year to June 2015, thus reflecting the decline of 23 percent in mining production. Non-mining output increased by 4 percent. Inflation fell slightly from 2.8 percent in September to 2.7 percent in October 2016. Subdued domestic demand pressures and benign foreign price developments contribute to the positive inflation outlook in the medium term. This outlook is subject to downside risks emanating from sluggish global economic activity and the resultant low commodity prices. It could, however, be adversely affected by any unanticipated large increase in administered prices and government levies as well as international oil and food prices beyond current forecasts.

Bank of Botswana, which cut its rate by 50 basis points in August said, that the exchange rate of Botswana’s pula has being rising slowly against the U.S. dollar this year and was trading at 10.6 to the dollar today, up 6.6 percent this year. In addition, in October that its exchange rate policy entails a 0.38 percent upward rate of crawl for the nominal effective exchange rate for the rest of this year, the Bank hinted. This appreciation of the pula is in contrast to the period from August 2011 until January 2016 when the pula fell over 40 percent.