With the expected fall in demand for credit as a result of the fallout from the global credit crunch, Botswana’s monetary authorities Friday heeded a call from critics by lowering the Bank Rate by 1 percent.
In a statement, the Central Bank noted that aalthough inflation remains above the Bank’s medium-term objective range of 3 ÔÇô 6 percent, it is anticipated that inflation will move towards it in 2009.
“On the other hand, continued deterioration in the global economic performance, as well as weaker domestic economic activity, would further dampen inflationary pressures,” the Bank said.
One analyst last week told Sunday Standard that Central Bank’s excuse of saying lowering cost of borrowing leads to indebtness should not be a line that the Bank will take under the current situation as it would be a risk to the economy.
Botswana, like the rest of the commodity producers, has been hit hard by the global recession that has left big economies like the US broke to buy Botswana’s diamonds.
The Bank’s Monetary Policy Committee (MPC) has now heeded the advice and fundamentals by slashing the Bank Rate by one percent, from 15 percent to 14 percent.
The Bank noted the easing of monetary policy is aimed at supporting the domestic economic activity.
Last week, the Standard Chartered Bank predicted that MPC will cut the Bank Rate by 1 percent in an effort to kick-start the stalling economy and provide ‘instant relief’ to struggling consumers and businesses.
“The current high rate of borrowing further exacerbates the negative economic environment in which businesses 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,” Standard Chartered Bank said.
Investec analyst Bakang Seretse also noted they expect a 2-3 percent cut in the interest rates in the course of the year as he sees no reason for rates not to touch lows of 11 percent experienced in 1999.