Wednesday, September 23, 2020

Analysts denounce rate hike as a tool to control current inflation rate

Financial analysts this week denounced interest rate hikes as the major tool to curb the rampant inflation rate that is being faced by the country, saying that the key factors behind the recent developments is beyond Botswana’s control.
“We must accept that we have a problem,” head of Capital Asset Management, Leutlwetse Tumelo, said Friday, adding that “we should not be raising interest rates at all”.

His comments came at a time when the inflation rate for the month of June showed the most stubborn behavior in recent history as it jumped from 12.1 percent in the previous month to 14.5 percentÔÇöthanks to the fuel pump prices that were introduced last month.

“Headline inflation in June, as measured by the Consumer Price Index (CPI), was 14.5 percent, a large increase of 2.4 percent from 12.1 percent in May.

“As in previous months the higher inflation was mainly a result to increased inflation in transport costs, which rose from 25.8 percent to 35.6 percent,” a report by the Central Statistic Office said.
In a statement, Investec Asset Management Botswana said, “Just when we thought inflation would go back to those dreaded levels, food and fuel prices seem to be driving it that way…”

“Soaring food and fuel prices are not just a domestic concern; they are a global phenomenon and pose a serious challenge to the world economic growth. When local fuel prices were hiked on June 19, crude oil was trading at US $ 132.26 per barrel; should oil continue trading at these levels, we should expect additional hikes in the short term,” an analyst at Investc, Maungo Lebanna, said.

She added: “Already, the Bank of Botswana has adjusted interest rates upwards by 1 percent from May 26 to June 19 in an effort to contain secondÔÇôround effects and inflation expectations. However, it remains questionable whether increasing interest rates will assist in containing inflation when most of the inflationary pressure is imported.”
According to CSO imported inflation stands at 19. 3 percent which is largely from South Africa, whose inflation is also in double digits blasting the Reserve Bank’s target range of three-to-six percent.

“With persistent high crude oil and food prices, there is little indication that relief is likely to come soon, especially since Botswana was too late in reacting to the rising crude oil prices as a result of fuel subsidies,” Lebanna said.

“We do not control the escalating crude oil prices and since last year around this time fuel prices have risen by as much as 70 percent,” Tumelo added.

The latest development comes at a time when the SADC ministerial task force has just emerged from its meeting in Lusaka, Zambia, last week where it mulled over plans of cushioning the likelihood of escalating food prices within the region.

The global food crisis is being made worse by the international fuel price spikes and the use of food crops into bio-fuel in response to crude oil prices.
However, the G8 ÔÇô a group of the world’s eight most industrialized countriesÔÇömeeting in Japan last week fell short of addressing the food crisis affecting the developing countries the most.
The industrialised countries include: Britain, Canada, France, Germany, Italy, Japan, Russia and the United States of America.

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