BoB Cuts Interest Rates

Staff Writer
In line with the falling inflationary pressures and the need to support economic activity in view of the global economic recession, the Bank of Botswana last Friday reduced the Bank Rate by 1 percent from 15 percent to 14 percent.

Although the economic performance scope has deteriorated rapidly in the past few months, falling oil prices have forced down inflation to 12.8 percent in January from 15.1 percent in August.

A statement released by the Bank's Public Relation Officer Chepete Chepete  said "At the meeting held today, the Bank of Botswana Monetary Policy
Committee decided to reduce the Bank Rate by one percent, from 15  percent to 14 percent". This is the second time the Bank has reduced interest rates in the past three months with the last reduction in December when it was reduced by 0.5 percent.

The Bank rate cut comes shortly after BoB governor Linah Mohohlo announced  in the 2009 monetary policy statement that the bank will ease monetary policy this year.

The decision by BoB to cut the, bank rate is also in tandem with analysts calls in recent months for a cut in interest rates to support economic activity.

Early last week, Standard Chartered bank's Asset and Liability Manager Maungo Lebana said that  a 100 basis point cut in the bank

rate was imminent   due to the need to kick start the stalling economy.

"A rate cut will provide relief to  consumers and businesses. The current  high rate of borrowing further exacerbates the negative  economic  environment  in which  business operate.

The budget speech has somewhat addressed fiscal policies intended to stimulate the economy.

Monetary policy now has to be deliberately tailored to complement the fiscal initiatives," she said.   

Although inflation remains above the Bank's medium-term objective range of 3 - 6 percent, it is anticipated that inflation will move towards it in 2009.

" However, there is a threat to the inflation outlook due to a possible significant increase in administered prices. 

The central bank's statement  further said  that in reducing interest rates, the Bank recognises the favourable inflation outlook, which provides scope for an easing of monetary policy to surppor domestic economic activity.

"  The Bank remains committed to responding appropriately to all economic and financial developments to maintain inflation within the medium-term objective range, which is supportive of long-run sustainable economic growth," said Chepete.



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