Gov�t tweaks exchange rate to boost exports

Brian Benza | Wednesday January 11, 2017 09:50

 

After the local currency gained value against all major currencies in 2016, monetary authorities have also moved to reduce the rate at which the pula gains value in an effort to maintain export competitiveness.

Acting permanent secretary in the Ministry of Finance and Economic Development, Cornelius Dekop said effective from January 01, 2017, the weight of the rand in the pula basket of currencies has been reduced to 45% from 50%.

“The pula basket of currencies has been reviewed in order to keep up with monetary policy developments in our major trading partner countries, with a view of maintaining a stable and competitive real effective exchange rate of the pula,” Dekop said in a statement.

Under the crawling peg policy, the Bank of Botswana (BoB) manages pula’s value in a ‘basket of currencies’ assigning weights to each currency.  The bank uses the ‘crawling peg’ system or regular precise adjustments, to appropriately review the pula’s value. 

The pula basket of currencies comprises the South African rand and the IMF Special Drawing Rights (SDR), consisting of the dollar, Japanese yen, the euro, the British pound and the Chinese renminbi.

The review, which is the second such adjustment in two years, means that the SDR weight increases to 55% in the basket.  In 2016, the rand was the most volatile currency in the world and this in turn impacted on the pula/dollar exchange rate as the local currency gained 5.5% against the greenback.

“The new change in the weight of the rand to 45% implies that if the rand depreciates by 10% against the dollar, then the pula will subsequently depreciate 4.5% against the dollar and not by five percent as before,” said FNBB research manager, Moatlhodi Sebabole.

In the 12 months to December 2016, the pula gained ground against the currencies of most major trading partners, appreciating against the pound (27.5%), euro (9.5%), dollar (5.5%) and the yen (2.1%) but depreciated against the rand (7.5%). Dekop also announced an adjustment on the rate of crawl from an upward crawl rate of 0.38% to an upward crawl rate of 0.26% thereby directly reducing the pace at which the pula gains value.

This will result in the pula gaining value by a reduced margin of 0.26% over 2017 down from 0.38% as monetary authorities seek to maintain the local currency’s export competitiveness.

The 5.5% appreciation of the pula against the dollar in 2016 means government got less pulas from its dollar-based exports, mainly diamonds.