BoB leans towards softer interest rates
Mbongeni Mguni | Tuesday February 25, 2020 14:51
He was speaking this morning at the launch of the Monetary Policy Statement for 2020, an annual event where the central bank reviews inflation trends and monetary policy performance, before announcing the policy position to be adopted for the rest of the year.
The monetary policy position can be austere, where the BoB looks for opportunities to raise interest rates, stable where it seeks to keep them stable, or accommodative where it seeks to reduce them. The choice of position is influenced by the review of economic and financial developments in Botswana, the region and the globe at large and their forecast impact on inflation.
Adjustments of interest rates determine the demand for money and thus the monetary policy stance is linked to not only inflation but broader economic conditions. The bank rate, controlled by the BoB, is currently set at 4.75% having been reduced in August last year after staying stable from as far back as October 2017.
Addressing guests who comprised several ministers, including Finance Minister, Thapelo Matsheka, Members of Parliament and top CEOs in the financial sector this morning, Pelaelo said inflation was expected to remain low and predictable into the medium term.
He said while upside risks to inflation existed such as possible adjustments of taxes, water and electricity tariffs, these were moderated by continued subdued global economic activity, the potential fall in commodity prices and modest domestic growth.
Generally, Pelaelo said, the current state of the economy and its outlook suggested an accommodative stance was consistent with the inflation target of between three and six percent.
“The recent and prospective developments (positive inflation outlook and a stable financial environment) augur well for maintaining an accommodative monetary policy stance that supports productive lending to businesses and households,” he said.
The continuation of the accommodative monetary policy stance for 2020 will come as good news for consumers as it signals potentially cheaper loans and repayments.
For commercial banks, however, any further reductions of the bank rate will squeeze the already tight margins all of the sector players have complained about.
The BoB’s stance on monetary policy was expected, with several analysts predicting that the bank rate could decline in the first half of the year.
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