Botswana’s Central Bank this week slashed benchmark rates in response to the fall in oil prices that has painted positive price stability in the months to come.
However, consumer inflation figures released by Central Statistics Office (CSO) this week showed that the consumer inflation shot up nearly 2% to 15.0 % as a result of the 30% alcohol although the outlook remains positive.
“Although inflation remains above the bank’s medium term objective range of 3-6 %, a positive outlook for price stability is projected and it is anticipated that inflation will move towards the bank’s inflation objective in 2009”, said Bank of Botswana in announcing the Monetary Policy Committee decision.
After the reduction by half a percent, the Bank Rate now stands at 15% from 15.5%, which was viewed as one of the highest in the SADC region. South Africa last week reduced interest rates by half a percentage point to 11.5% in a bid to stimulate economic growth.
Bank of Botswana has watched other central banks around the world when they lowered rates in a response to global credit crunch and economic slowdown.
The bank, for two consecutive updates, left the rate steady. This has angered industry, which is starting to feel the repercussions of the credit crunch.
Central banks around the world use interest rates to control money supply and curtail exercise borrowing although in Botswana the latter has not been working.
The Bank of Botswana says the anticipated decline in inflation in the medium term together with the prospect of a slowdown in output growth provides scope for monetary policy easing.
“The bank remains committed to responding appropriately to all economic and financial developments to maintain inflation within the medium term objective range without undermining sustainable economic growth,” the Bank of Botswana said this week.