Beating the credit growth path to door :: Mmegi Online

In another ardent bid to support flagging economic growth, Bank of Botswana (BoB) once again cut interest rates last Friday targeting to make access to funding cheaper. But if not accompanied by other economic structural reforms, BusinessWeek’s BRIAN BENZA argues that the latest rate cut might just be as good as flogging a dead horse as the propensity of lower interest rate to boost credit growth has been greatly neutralised by limitations such as weak domestic demand, falling real wages, low business confidence and the prevailing higher risk aversion by banks

The central bank last Friday slashed the benchmark interest rate by another 50 basis points further pulling down lending rates that were already sitting at record low levels. The sole and well-intended aim of the rate cut is to try and make lending cheaper, particularly to those who want to use the funds for productive purposes. With inflation similarly sitting at record low levels, the BoB could afford to loosen its monetary policy without fears of demand push factors kicking in again from the extra cash that would have been pumped into the economy.

Additionally, the low wage and employment growth rates could be causing weak household consumption and thus resulting in lower demand-pull inflation pressures through to 2017.

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