Motswedi Securities has forecast that the September reading for the CPI numbers could be below the August figure—which will force the central bank to lower the cost of borrowing.
The local research and stock broking firm said on its weekly market update that the reduction of interest rates will not however be welcomed by the banking industry.
“Our forecast is that the Sept inflation reading will come out even lower, falling below 3% following the downward review of fuel prices early this month,” Motswedi analysts wrote.
“If inflation continues on this downward trajectory especially below the 3% point mark, we cannot rule out another interest rate cut by the Bank of Botswana during Q4:2015,” they said.
Statistics Botswana last week released August inflation numbers which came out lower in line with expectations at 3.0 percent y/y from 3.1 percent y/y previously. Over the past months Botswana’s inflation has been predictable as a result of lower fuel and food prices and there is a general consensus that it will remain within the 3-6 percent Bank of Botswana objective range.
Investec analyst Tshephang Loeto wrote last week that while it is important to keep the inflation numbers from breaching the upper objective range, it is equally crucial to maintain the figures above the lower target.
“This puts even more pressure on the Central Bank to further reduce the bank rate in an attempt to stimulate growth. The inflation threat is more to the downside given that the September reduction in fuel prices has not yet filtered through to the CPI numbers,” he added.
Motswedi however said should the central bank slash rates, the move will be received well by the household and the business sectors, but will certainly not be welcomed by the banking sector which is already sending warning bells with regards to a squeeze in its interest margins.
“Already all the listed banks on the BSE are reporting a decline in profitability citing the low interest rate environment and squeeze in margins,” argued the analysts.