BoB in ‘comprehensive’ review of pula framework
Mbongeni Mguni | Monday July 6, 2026 06:00
While central bank officials said the review would be comprehensive, they were also quick to stress that this did not imply the results would equally be significant.
The Pula has been managed via a crawling peg system since 2005, which relies on the central bank having sufficient levels of reserves to make foreign currency available to commercial banks at the rates that it quotes.
The reserves fell by P4.2 billion or 8.1 percent last year, as diamonds continued a slowdown seen since 2023.
BoB deputy governor, Kealeboga Masalila said the review was part of the Bank’s commitment to continuously assess monetary functions within its mandate.
“We have never been static and we are in continuous motion, responding,” he told BusinessWeek during a briefing last week. “When diamonds were dominant, and we looked at what the best exchange rate framework was, we were concerned about exchange rate volatility. “We're in a different environment and there's a case for reviewing.”
According to figures shared by the Bank, the foreign exchange reserves were pegged at P61.8 billion when they were last measured in April, a recovery from P47.4 billion in December 2025. Part of the recovery was due to adjustments to margins last January and July which slowed sales to banks as well as inflows from hard currency loans and improved diamond sales.
However, in the absence of a significant recovery in diamond sales and before the import substitution initiatives planned for under NDP 12 and the Botswana Economic Transformation Programme kick in, the reserves are expected to remain under pressure.
The crawling peg system means that the central bank quotes its rates every day and is obliged to make foreign currency available to banks at the rate that it quotes. The rate under the crawling peg does not depend on the local market or supply and demand, but rather is calculated daily based on a basket of other currencies and inflation in those countries.
Analysts, such as former BoB deputy governor, Keith Jefferis, have cautioned that as the reserves remain weak or decline further, the exchange rate mechanism would inevitably have to change, with the pula required to be more flexible and market determined.
Where the reserves to continue falling without the crawling peg being reviewed, the situation could trigger an unmanaged slide towards free float of the pula where the currency, unsupported by the reserves, could see its value plummet into a currency crisis.
Masalila told BusinessWeek that the exchange rate policy decisions made last year had in effect tested the potential of the Pula being market determined. The changes included the BoB changing the margins it charges commercial banks to access the foreign currency it holds, while also increasing the minimum threshold of foreign currency commercial banks can approach the central bank for, from $1 million to $5 million.
The changes have seen banks tap more into their own foreign currency holdings and enjoy greater latitude in the rates they charge different types of customers.
“The decisions have engendered more market determination, but obviously, within limits,” the deputy governor said.