The central bank has generally maintained an accommodative monetary policy stance for years, only breaking the trend in 2022 when 14-year high inflation forced interest rate hikes of 151 basis points.
The looser monetary policy stance is aimed at encouraging more private sector spending through lower interest rates, which in turn perks up economic activity such as job creation.
Speaking on Wednesday at the launch of the bank’s Monetary Policy Statement, Governor Cornelius Dekop said the stance was made possible by expectations that inflation will remain within the BoB’s objective range of three to six percent.
“The recent and prospective developments for both domestic and external economic activity suggest that the economy will operate below capacity in the short term. “If this situation persists, then it may allow for accommodative monetary policy in 2024,” De Kop said.
He said risks to the inflation outlook are seen as balanced.
According to the Monetary Policy Statement, inflation this year could be higher than projected if international commodity prices increase beyond current forecasts, supply and logistical constraints persist and the reversal of global economic integration (geo-economic fragmentation) escalates.
“Furthermore, a possible upward adjustment in administered prices that is not factored in the current projection, the likely impact of the announced upward adjustment in minimum wages and public servants’ salaries in February and April 2024, respectively, and any increase in domestic food prices due to the projected El Niño conditions in Southern Africa, may lead to higher inflation,” the Statement reads.
On the flip side, however, inflation could be lower than currently anticipated due to the possibility of both weaker domestic and global economic activity and the disinflationary effects of higher monetary policy rates globally, as well as any decrease in international commodity prices.
Analysts have however noted that the record-breaking P102 billion stimulus budget could also prove inflationary, in the amount of money that is planned to be pumped into the economy in the upcoming financial year. The accommodative monetary policy stance is equally seen as expansionary.
Dekop said given that both monetary policy and fiscal policy are expansionary, “immediate implementation of transformation initiatives and structural reforms are expected to raise prospects for faster growth and economic diversification”.
“Against this background, enhanced productivity/innovation of industry and effectiveness of support institutions and service providers would help improve economic growth prospects in an environment of price and financial stability,” the governor stated.
The BoB was scheduled to announce its first interest rate decision of the year on Thursday.
