ESP to boost banks� liquidity � IMF
Isaac Pinielo | Wednesday April 27, 2016 18:00
The institution’s optimism, however, seems to go against the current outlook, with interest rates being at record low levels since 2015 and credit growth declining as commercial banks adopted a cautious approach to lending in the context of slow growth in customer deposits and increasing competition to raise funds.
In a Botswana report published recently, the IMF said the change in fiscal policy is expected to enhance monetary policy transmission by releasing commercial banks’ liquidity constraints through increased deposits in this way supporting domestic demand.
“In this regard, the BoB agreed on the need to continue using existing liquidity management tools (i.e. auctions of BoB certificates and repo transactions) and lending facilities to ensure that interest rates and liquidity conditions are consistent with sustainable credit growth and the BoB inflation objective,” said the IMF.
The ESP is expected to release up to P3 billion into the local economy in the next two years.
Meanwhile, the Bank of Botswana (BoB) yesterday decided to leave its bank rate unchanged at six percent, saying inflation is forecast to remain within the 3-6 percent objective range in the medium term.
The bank, which has cut its rate by 150 basis points last year, stated that global output is projected to grow by 3.2 percent and 3.5 percent in 2016 and in 2017, respectively, compared to the 2015 estimate of 3.1 percent.
“However, economic performance across the globe is uneven, with challenges relating to economic restructuring in both developed and emerging market economies constraining medium-term growth prospects,” said the bank.
In Botswana, the central bank noted that the gross domestic product (GDP) is estimated to have contracted by 0.3 percent in 2015 compared to the 3.2 percent growth in 2014, thus reflecting a decline of 19.7 percent in mining production.
It said non-mining output increased by 3.5 percent, with inflation being unchanged at three percent between February and March 2016.
The bank further stated that modest domestic demand and subdued foreign price developments contribute to the positive inflation outlook in the medium term, adding that the outlook is subject to downside risks emanating from sluggish global economic activity and the resultant weakening commodity prices.
“It could, however, be adversely affected by any unanticipated large increase in administered prices and government levies as well as international oil and food prices beyond current forecasts,” the bank said.
It emphasised that the current state of the economy, domestic and external economic outlook and the inflation forecast suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the bank’s medium-term objective range.
The central bank stated that the monetary policy is also aligned with the need to safeguard financial stability, adding that credit growth is considered to be at a sustainable level, posing no threat to financial stability.