Govt looks to chip away at Pula�s value

Mbongeni Mguni | Tuesday January 9, 2018 16:10

 

This, analysts have said, in the face of an overvalued currency. 

In its annual review announced recently, the ministry shifted the rate of crawl from an upward climb of 0.26 percent last year, to a downward rate of 0.30 percent this year. 

The annual review of the rate of crawl sets the direction the ministry and the Bank of Botswana want the pula to trend in terms of its value against the South African rand and hard currencies for the year. 

The revised rate of crawl means the value of the pula will be reduced by 0.30 percent over the year, a rate of change prominent economic, Keith Jefferis described as “very little”. 

Jefferis, however, told Mmegi Business that the shift to a downward rate of crawl was particularly important this year. 

“The shift to a downward crawl is especially important given concerns about the overvaluation of the pula and lack of export competitiveness, as it will help stop the problem getting worse,” he said in a response emailed earlier today. 

“As has been stated, the rate of crawl is determined by the difference between the expected inflation in Botswana and the expected inflation in major trading partners.

“The shift to a downward crawl presumably reflects the reduction in trading partner inflation, especially South Africa.” 

Jefferis, who is also Econsult managing director, said the major factors that would influence the pula in 2018 would include the fluctuations in the bilateral exchange rate of currencies such as the South African rand and the dollar. 

“This will mainly reflect economic developments in the USA and political developments in South Africa,” he said. 

African Alliance chief investment officer, Nlume Modise told Mmegi Business the actual direction of the pula would be dependent on the rand and its relation to hard currencies.

“In terms of actual impact on the pula, what we have observed in the recent past that the strength or weakness of the pula is largely determined by how the rand performs against hard currencies,” he said. 

“A 0.30 percent downward rate of crawl is the Bank of Botswana pointing towards weakening the pula against the basket of currencies in the pula basket.”