BoB sees inflation slowing in 2025

Mbongeni Mguni | Wednesday April 23, 2025 06:00

Inflation, which is the rate of growth in the average prices of goods and services in the economy, has been marginally ticking up in recent months, being last measured at 2.8 percent in March. The level is, however, still lower than the three to six percent range seen by the BoB as ideal for business activity and economic stability.

Central bank executives said the United States global trade tariff posture has significantly pushed down international oil prices, which at some point sank to levels last seen during the COVID-19 pandemic. The trend is mainly due to the impact of the trade war, particularly with China, on global economic prospects.

Central bank governor, Cornelius Dekop, told MonitorBusiness last week that another factor expected to push inflation down this year would be subdued local economic activity.

“The subdued forecast for inflation is because of base effects on the reduction of fuel prices and the subdued economic activity,” he said during a briefing.

In the calculation of annual inflation, base effects relate to price movements in the corresponding period of the previous year, which if high, distort the measurement of prices in the current period.

For instance, if there was a fuel price increase during a month or period last year, but no corresponding increase in the same month or period this year, the inflation calculation shows a significant downward movement.

The subdued economic activity is related to lower expectations of a strong diamond recovery, given the impact of the US tariffs on global growth prospects as well as slow movement in economic transformation initiatives such as diversification.

Innocent Molalapata, the BoB’s director of Research and Financial Stability, told MonitorBusiness that other factors that had led to the revision of the inflation forecast this year, include the expected reduction in water tariffs.

“At the time we did the projection in February, we didn't have information about the water tariffs, but now we know that we expect them to go down and that will have a downward effect on the inflation projection,” he said.

Molalapata added that another factor expected to ease inflation is the downward revision of inflation expectations in South Africa. The regional giant accounts for a high proportion of Botswana’s imports and lower prices in that country will lead to lower imported inflation.

“We also expect a higher appreciation of the pula against the rand compared to what we had projected at our last meeting. “This is mainly because of how the rand is expected to perform against other international currencies,” he said.

The last time inflation was above the BoB’s three to six percent range was in April 2023. Since then, the rate of growth in average prices has been declining and since September 2024, has been lower than three percent.

Besides external developments, a major driver of lower inflation has been low inflationary pressures in the country due to muted domestic economic activity. The lower demand in the economy is a concern to the BoB and fiscal authorities as it is linked to a subdued economic performance with the associated poor job creation and output.

The economy contracted by 3.3 percent last year owing mainly to the prolonged downturn in diamonds.