BoB moves again to protect foreign reserves
Mbongeni Mguni | Monday July 21, 2025 06:18
The country’s official foreign reserves, managed by the BoB, fell P18.4 billion between March 2024 and March 2025, triggering concerns about the country’s ability to pay for its imports whilst also fuelling growing anxiety about the value of the pula.
Besides increasing the threshold for trade with banks, the BoB also raised its trading margin used for foreign exchange transactions to banks, from ± 0.5 percent around the central rate to a margin of ± 7.5 percent. The BoB increased the margin from 0.125 percent to 0.5 percent in January.
Responding to BusinessWeek’s enquiries during a briefing last week, BoB deputy governor, Kealeboga Masalila, said the moves were designed to discourage banks from depending on the central bank for foreign currency, and rather push them to seek foreign currency amongst themselves.
“Whilst the official reserves have been falling in the past year and are precarious, the commercial banks and the private sector hold their own foreign currency,” he said. “The idea behind increasing the margins is to minimise or make it more expensive for banks to come to the BoB for foreign exchange reserves. “The result of that should be more trading amongst themselves for foreign currency and also motivating their customers to exchange foreign currency with them, which can then preserve the official foreign reserves. “The idea is for the banks to tap the foreign exchange in the market which they can do by devising various products for the market.”
The BoB has long advocated for the growth of the interbank market, but generally, commercial banks prefer to source their foreign currency requirements from the central bank.
The interbank market theoretically involves trades between banks and firms holding foreign exchange inventories with those seeking them, reducing the recourse to the central bank.
However, traditionally, banks prefer the BoB as it is not only a cheaper source of foreign currency but also bears a statutory mandate to make these funds available on request by banks.
Masalila said in its latest moves, the central bank was encouraged by the response to the January increases in margins.
“At the beginning of the year, there was an increase in margins but it was slight. “We have seen that although slight, it has helped some increase in trading of foreign currency between banks and their customers. “There has been a reduction in the resort to the central bank and given that we have increased the margin, that effect should be more impactful,” he told BusinessWeek.
Deputy governor, Lesego Moseki, said the ultimate solution to the country’s foreign exchange reserves’ challenges would be greater production of goods of a wider variety.
“We have to increase production levels and the range of goods we are producing for export or to substitute imports,” he told BusinessWeek. “In the demands for foreign currency from banks to clients, the biggest item is oil for vehicles and the second is retail which is imports of food and others. “With oil, we may try to reduce its usage, but with goods and services, there’s a lot that can be done to offset the import bill.”
Increasingly, the central bank has been making transfers from the longer-term portion of the foreign exchange reserves, the Pula Fund, to the shorter-term Liquidity Portfolio to deal with the short-term requirements for foreign currency in the market.
Under its own regulations, the BoB is required to keep a minimum import cover of six months in the Liquidity Portfolio.