BoB moves to reignite flagging economy

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The central bank cut its benchmark bank rate by 50 basis points this week, a move analysts said could be the catalyst required to reignite subdued economic growth. On Tuesday, Bank of Botswana (BoB) announced that it has reduced the bank rate to nine percent from 9.5 citing favourable inflation forecast in the medium-term.

The rate has remained constant since a reduction in December 2010. "The current state of the economy, where output growth is below potential and characterised by high unemployment could be reignited by a measured non-inflationary stimulus," the bank said. Domestic output has been subdued, growing by a modest 3.7 percent in the 12 months to December 2012 with the non-mining sectors slowing to 5.8 percent growth from 7.8 percent in 2011. The mining sector contracted by 8.1 percent.

Economic growth may  be slow this year because of lower government spending, weak international markets as well as falling domestics demand. "The motivation of the rate cut is presumably the bank's forecast of inflation over the next 12-18 months, which most likely suggests a fall in inflation to within the target range. This may encourage firms to borrow and invest marginally more, and is appropriate given the anticipated weak economic conditions over the next 12 months," says economist Keith Jefferis.

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