The latest 50-basis point downward adjustment means that the bank rate now moves from 15.00 percent to 14.50 percent, although observers still feel the repo rate is still high compared to Botswana's trading partners.
"The reduction in the Bank Rate reflects the positive outlook for the path of inflation. Since May 2006, inflation has maintained a downward trend, and in May 2007, it was within the Bank's annual inflation objective range of 4 - 7 percent for the third consecutive month," says BoB spokesman Chepete Chepete in a statement.
The current Botswana inflation rate stands at 6.3 percent.
The announcement comes hot on the heels of Botswana manufacturers' grumble over the country's high interest rates during a meeting with the Botswana Export Development and Investment Authority (BEDIA) in Gaborone.
"Interest rates are very high. This makes capital costs the biggest input costs. The government and BEDIA need to come up with a way of subsidising industry costs," complained Vijay Naik of Flo-Tek, a pipe making company.
The Botswana Central Bank last made adjustments in the monetary policy in February 2006 when the Bank Rate was increased by half a percentage point.
Central banks use interest rates to control borrowing and money supply. By changing interest rates, the BoB is trying to achieve stable prices and a good level of economic growth.
As interest rates drop, consumer-spending increases; which in turn stimulates economic growth.
Reduction of interest rates also allows companies to borrow money from commercial banks at a cheaper interest rate levels. In that way, borrowing companies may increase production and employ more people.
Chepete says the current level of inflation is more reflective of the influence of BoB's monetary policy stance.
However, he said that "going forward, there was a likelihood of short-term volatility in inflation due to recent faster price increases in South Africa and supply shortages for some goods and services."
"The Bank will continue to monitor economic and financial developments and will respond appropriately to meet policy objectives. Financial institutions are expected to ensure that when adjusting interest rates, they maintain a reasonable balance between lending and saving rates".
