The low interest rate, falling credit paradox

For the second time this year, consumer inflation breached the lower end of the Bank of Botswana’s (BoB) 3-6 percent medium term objective in April.  While the slow down in the rate at which general prices are increasing might be an indication of sluggish economic activity, some analysts argue it provides the BoB with room to further cut interest rates to boost productive lending.  Although, such a move carries a risk of capital flight with some investors likely to start looking outside the borders for higher interest rates.

Botswana’s consumer inflation slowed to 2.8 percent year-on-year in April from three percent in March, according to Statistics Botswana.