Pula adjusted to support exports, protect reserves

The move is intended to support the export competitiveness of domestic producers and follows an assessment that inflation in the country will be higher than in the trading countries whose currencies are used to weigh the value of the Pula.

“The policy objective is to maintain price competitiveness of local producers for similar products, in both the domestic and international markets by equalising the exchange rate-adjusted prices,” the Finance Ministry said in explanatory notes following a briefing yesterday evening. “If a bag of potatoes is currently P100 in Botswana and R130 in South Africa at an exchange rate of P1 = R1.30, and assuming transport costs are not embedded in the pricing, Botswana’s producers face similar market price as South African producers and, therefore, competitive. “If, however, inflation in Botswana rises to be five percentage points higher than in South Africa, Botswana producers will be disadvantaged as it would be cheaper to purchase the same bag of potatoes in South Africa, holding all other things constant. “Therefore, the Pula exchange rate needs to adjust downward by five percent (rate of crawl) to maintain competitiveness of producers in Botswana; technically, maintenance of a stable real effective exchange rate.