BoB keeps interest rates unchanged

Brian Benza
Staff Writer | Wednesday October 31, 2007 00:00

At a meeting on Monday, the BoB's Monetary Policy Committee decided to leave the Bank Rate unchanged at 14.5 percent.

The central bank last adjusted the rate was in June when it lowered it by half a percentage point.

A statement says the bank's decision was driven by anticipated upside risks to inflation, which might include possible increases in fuel and administered prices.

Interest rates are one of a number of instruments BoB uses to control inflationary pressure. The statement says any further downward adjustment of the bank rate would have an expansionary effect on money supply and consequently blow the inflation rate out of the 4 to 7 percent target for the rest of the year.

The bank also cites sustained high levels of aggregate demand  pressures as having a potential influence on inflation trends in the medium term, hence the need to stick to the prevailing monetary policy measures.

'Inflation fell within the BoB's annual objective range in September, with several categories of goods and services recording lower annual rates of price increase,' the statement says.

'Looking ahead, additional upside risks to inflation include the possible increase in fuel and administered prices in the fourth quarter of 2007.

'Against this background, the Bank considers it prudent to maintain the current monetary policy stance with the aim of sustaining the medium-term inflation path and expectations of low inflation.'

Using interest rates as a tool to stifle demand has proved to be an effective anti-inflationary measure in neighbouring South Africa from where Botswana imports a significant amount of inflation.

A further reduction of interest rates here would have pushed up credit growth, which has been firming in both the household and business sectors, leading to inflation.

After the June downward adjustment,  BoB certificate rate has also been gradually slowing down in the third quarter, falling from 12.66 percent at the end of June to 11.97 percent at the end of September.

However, in the same period, the inflation  rate which started with an increase  in July to 7.5 percent from the June figure of 6.4 percent declined to 7.2 percent in August and closed the quarter at 6.8 percent.

The fall has been largely attributed to stabilisation in food prices, as food inflation contributes a significant chunk to the headline figure.