The central bank raised interest rates three times last year, by a collective 151 basis points as it fought soaring inflation which peaked at 14-year highs in August. However, since then, inflation has been falling – largely due to dissipating effects of fuel price increases felt last year which weighed heavily on consumer price index calculations. This July, inflation cooled to 1.5 percent breaching the desired rate of a lower bound of three percent from a recorded 4.6 percent in July. In a press statement released by the central bank, authorities predict that inflation will continue to cool further as base effects fade away and will continue to cool to 2024, falling below the banks 3-6 percent medium range and returning within range in 2024. “Inflation is forecast at 1.2 percent for August 2023 and the MPC projects that inflation will remain below the lower bound of the objective range temporarily and revert to within the objective range from the first quarter of 2024 into the medium term,” authorities revealed.
Factors associated with the continued forecast of cooling inflation include the absence of upward adjustment of administered prices, subdued domestic demand, and projected appreciation of the pula against the South African rand and zero rating of a select number of items from Value Added Tax. Threats to the outlook include international commodity prices increasing beyond current forecasts, the persistence of supply and logistical constraints, as well as the reversal of global economic integration, specifically geo-economic fragmentation. Analysts at Kgori Capital predicted that should the bank maintain the interest rate, it will have a problem of fighting subdued economic demand and depressed economic activity for the whole year. The analysts believe that not reducing interest rate will affect spending and lending prospects causing a slowdown in economic activity. “The bank is faced with fighting subdued economic activity and inflation, fears of spiking inflation however remain the main worry of the bank,” the analysts said.
BoB Governor, Moses Pelaelo said that despite interest rate being kept at 2.65 percent they are banking on government’s supportive macroeconomic policy implementations in order to revive economic spending and make credit more appealing. “The implementation of the Economic Recovery Transitional Plan and the two year term transitional development plan will help in making credit more appealing and accessible to improve demand for credit,” he said. Pelaelo further said they are aware that the economy will operate below full capacity in order to curb inflation which may be caused by consumer demand causing prices to uptick.
