BoB keeps bank rate steady again

Brian Benza
Staff Writer | Wednesday August 3, 2011 00:00

 

The decision is a boon for borrowers because it means interest rates in Botswana have been torpid for the past 8 months.  It was taken at this week's Monetary Policy Committee (MPC) meeting.  After slashing rates by 550 basis points to support recession-battered economic activity in 2009, Botswana's apex bank last adjusted the bank rate in December 2010.

In a statement released on Monday, BoB says it kept its main bank rate unchanged as the prevailing level of interest rates was consistent with the achievement of its 3 - 6 percent inflation objective in the medium-term.

Latest data shows inflation slowed to 7.9 percent year-on-year in June from 8.3 percent in May.  BoB said inflation was expected to remain above the target range in the short-term, partly due to higher food prices going into 2012 and a higher inflation forecast for neighbouring South Africa.

With South Africa being Botswana's top trading partner that constitutes about 90 percent and 80 percent of fuel and food imports respectively, imported inflation stands out as a major obstacle to the central bank's objective. 

Other upside risks to the inflation outlook include any un-anticipated large increases in administered prices and government levies, and an increase in international oil beyond current forecasts.

'As a result, inflation is forecast to converge to the medium-term objective range in the second half of 2012,' it says in a statement. 

BoB recently announced that rising fuel prices and expected utility tariff hikes in the first half of this year would see the annual inflation rate fall within the 3 to 6 percent medium-term objective in the second half of 2012, and not in the second quarter as previously forecast.

On output, BoB says non-mining gross domestic production will remain below trend in the medium-term as government spending remains depressed.

The level of output in the 12 months to March 2011 is estimated to be 6.4 percent higher than in the same period in 2010, thus reflecting the 7.2 percent growth in mining output and the 6.1 percent increase for the non-mining sectors.  Nevertheless, output is estimated to remain below trend and will, therefore, moderate demand pressures on inflation.

'Although exporting sectors will benefit from recovery in world demand, output in the domestic economy will be moderated due to lower growth in government spending, especially reduced development expenditure,' the Bank says.  'Furthermore, it is anticipated that the impact of demand on economic activity will be subdued, and this would reflect the sluggish pace of growth in personal incomes and the increase in administered prices and other government levies.

'In the circumstances, the interest rate policy stance pursued since 2010 continues to be supportive of economic activity and will contribute to a narrowing of the output gap in the medium-term.'