However, the report, compiled by Standard Chartered Chief Africa economist Razia Khan predicted that the decline in Botswana's inflation rate should accelerate in the fourth quarter reflecting the lower oil prices.

The national inflation for September according to the Central Statistics Office stood at 10.5 percent down from 10.7 in August But, says Khan, the strong credit growth, which has continued to rise, is a worrying factor notwithstanding the fact that it has recently recovered to levels within the Bank of Botswana's preferred 11-14 percent band.

In August, commercial credit grew 13.7 percent year-on-year, which is just under the top level, seen as consistent with the inflation objective.

"Worryingly, the share of credit to households (i.e. credit typically extended to finance consumption) increased to 58.9 percent of total credit," Khan said in her November report.

Lending to households soared by 15.9 percent in August and credit to businesses also exhibited strong growth in the same month, rising 10.5 percent year-on-year "but it is the more dramatic rise in household credit that worry policymakers."

As a result, she said the monetary authorities are likely to remain cautious and that the risk to a December rate cut by BOB appears to be growing.

She added however that in the medium term there is still room for aggressive interest rate easing as inflation in Botswana and South Africa converge, but pointed out that the authorities may still be hesitant to act, up until they are more confident about the all-clear on regional inflation.

She also pointed to the uncertainty about the impact of the recent currency volatility, which is also likely to add to policymaker caution.

"It now appears more probable that the start of the interest rate easing cycle in Botswana will be delayed until the first quarter of 2007," she said.