BoB hikes rate, orders banks to hold lending rates
Lewanika Timothy | Wednesday May 6, 2026 06:00
Announcing the decision this week, the central bank said the adjustment was necessary in light of mounting inflationary pressures linked to global and domestic developments, particularly the recent surge in fuel prices.
Inflation stood at 4.2 percent in March, and is now projected to accelerate sharply, breaking through BOB's three percent to six percent objective range in the second quarter. BoB estimates inflation will average 8.7 percent in 2026, driven largely by increases in fuel costs, public transport fares, and medical aid premiums.
The rate hike comes as global oil markets remain volatile following escalating tensions in the Middle East, with Botswana, a net fuel importer, directly exposed to external price shocks.
Despite the upward adjustment, the central bank, for the second time, instructed commercial banks not to increase their prime lending rates, in a bid to prevent additional strain on households and businesses already facing tightening financial conditions.
The Monetary Policy Committee (MPC) said it remained concerned about the transmission of policy changes, noting that some lenders have in the past widened margins above prime, diluting the intended impact of monetary policy.
“The committee emphasised the need for commercial banks to maintain lending rates at current levels,” the bank said, signalling closer scrutiny of pricing behaviour in the banking sector.
The move effectively attempts to balance two competing objectives: to contain inflation whilst avoiding a rise in borrowing costs that could further dampen economic activity.
Botswana’s economy remains under pressure, having contracted by 0.7 percent in 2025, following a steeper 2.8 percent decline in 2024, largely due to weakness in the diamond sector. Whilst a modest recovery is projected for 2026, growth remains fragile and uneven.
Higher interest rates typically act to slow inflation by reducing demand, but also risk curbing investment and consumption, particularly in an environment where disposable incomes are already under strain.
In addition to the MoPR adjustment, the BoB raised the Standing Deposit Facility rate to 4.5 percent and the Standing Credit Facility rate to 6.5 percent, tightening conditions in the interbank market.
The central bank maintained that the latest move represents a recalibration of policy settings rather than the start of an aggressive tightening cycle, with authorities continuing to weigh inflation risks against the need to support economic recovery.