Following the decline in the annual inflation rate to 6 percent last month, the Bank of Botswana on Tuesday announced a further slashing of interest rates, a development widely seen a boon for borrowers.
BoB said in a statement that the Monetary Policy Committee (MPC) had decided to cut the bank rate by a further 0.5 percentage points from 11.5 percent to 11 percent, the fifth time the central bank has cut interest rates since December 2008.
The Central Statistics Office (CSO) recently announced that annual inflation for the month of July fell to 6 percent from 7 percent, which is within the upper end of BoB's medium-term inflation objective of 3 to 6 percent.
"At (a) meeting held today (Tuesday), the Bank decided to reduce the Bank Rate by half a percentage point from 11.5 to 11 percent," read the statement issued by central bank PRO, Chepete Chepete, this week.
"Since December 2008, inflation has declined continuously to reach the upper limit of the Bank's medium-term objective range of 3 - 6 percent in July 2009. Although inflation is likely to fluctuate in the short-term, it is expected to stabilise around the objective range over the medium-term."
BoB said the decision to cut the bank rate was based on the fact that a favourable inflation outlook continued to exist in the medium-term, which was the relevant time frame for monetary policy to have an effect.
The Bank said it remained committed to responding appropriately to all economic and financial developments to achieve medium-term price stability, which contributes to sustainable
Now hovering around US$70 a barrel, international crude oil prices have strengthened since the beginning of the year, leading to the Ministry of Minerals, Energy and Water Resources to adjust fuel pump prices twice in the past three months.
"Underlying the positive inflation outlook is the subdued global economic activity and the projected below-trend performance of the domestic economy," the statement said. "The upside risks to this outlook include the possibility of an increase in administered prices and the uncertainty with respect to international oil prices.
"However, the low domestic economic growth should contribute to a low inflationary environment in the context of the weak global economic performance and the associated low inflationary pressures," added Chepete.
Speaking at the launch of new bank notes in Gaborone last week, BoB Governor Linah Mohohlo said while factors such as the recent fuel price increase would add "somewhat" to inflation pressures in the short-term, the general trend was likely to remain downward.
"However, the outlook for low international and domestic inflation trends, which has translated into a fall in overall price levels in some countries, is unlikely to persist," Mohohlo said.