Bank of Botswana Monetary Policy Committee (MPC) sitting on Monday has decided to leave the benchmark rate at the current levels of 9.5 percent saying inflation is in line with forecast in the long-term.
Analysts have been saying the Bank will adopt a wait and see approach to see the direction of the CPI before tempering with the Bank Rate.
In a statement released on Monday afternoon, the Central Bank said the Bank’s Monetary Policy Committee came to the conclusion that the medium-term outlook for inflation continued to be positive.
“The current state of the economy and the assumptions on both the domestic and external economic outlook, as well as the inflation forecast, suggest that maintaining the prevailing level of interest rates is consistent with the achievement of the Bank’s 3 ÔÇô 6 percent inflation objective in the medium term,” a statement issued by Andrew Sesinyi, Head of Communications at Bank of Botswana said.
“Accordingly, the Monetary Policy Committee decided to maintain the Bank Rate at 9.5 percent.”
The move was also supported by mixed movement of prices over the past months with CPI data released last week by Statistics Botswana showing inflation slowing to 8.6 percent, down by 0.1 of a percentage point from 8.7 percent in August 2011.
The move is in line with market consensus since the beginning of the year that Bank of Botswana will adopt a wait and see tactic before it could lower or up the interest rates.
Carol Jean Harward, an analyst at Investec, said the Central Bank will start removing policy accommodation sometime next year.
“We expect the MPC to maintain their accommodative stance as they adopt a “wait and see” approach to observe how the global market recovery pans out,” Harward said.
“With an expected “somewhat” stable global recovery in the second half of next year coupled with inflation hitting 9.5 percent in the first half of 2012, Bank of Botswana will be impelled to start removing policy accommodation in the later months of 2012,” she added.
Bank of Botswana, like other Central Banks around the world, uses the Bank Rate or Repo Rates as a benchmark rate and it is used to control the money supply. This is also the rate of interest it charges on the money it lends to commercial banks.
Although the medium-term outlook for inflation continues to be positive, however, in the short term price developments imply that inflation will continue to be above the 3 ÔÇô 6 percent objective range, due to the impact of the increase in fuel prices and public transport fares, as well as a revised higher forecast for inflation in South Africa.
Inflation is forecast to converge to the 3 ÔÇô 6 percent medium term objective range in the second half of 2012.
Domestic inflation rose from 7.8 percent in July 2011, to 8.6 in September. The rise in inflation was due, largely, to the increase in fuel prices and public transport fares in August 2011.
The Bank said the low demand and the forecast modest external inflationary pressures contribute to the positive inflation outlook in the medium term.