Tuesday, May 18, 2021

Bank of Botswana ‘fixated’ on price stability

The Gaborone Bonnington South MP, Ndaba Gaolathe, has slammed the Bank of Botswana (BoB) for neglecting its statutory mandate to facilitate economic development in the form of output and balanced growth.

“Although this is and must always be a consideration in the formulation of monetary policy, it is certainly not the highest ranking consideration in the Bank of Botswana’s priorities. In fact, it is not extravagant to observe that monetary authorities in Botswana are more fixated on price stability (low inflation) than on anything else. This is not to say it is wrong, but it can be and indeed it is problematic in some cases when it conflicts with development and growth aspirations,” the MP says.

To back up his case, he cites BoB’s Monetary Policy Statement (MPC) of 2015 which explicitly identifies price stability as the primary objective of monetary policy in Botswana. This MPC also identifies safeguarding the soundness and stability of the financial system as an important objective.
“Thus the Bank of Botswana describes its monetary policy framework as that of inflation targeting,” Gaolathe says.

Giving a global outlook, the MP, who is also the leader of the Botswana Movement for Democratic Change, says that objectives of monetary policy usually include price stability (inflation control), financial stability, output stability, output growth or even economic development.

“More developed economies tend to focus on keeping inflation as low as possible and also value financial stability. However, all the other objectives are also important, although they may conflict with the higher priority objectives. For instance, a central bank that is zealous about keeping inflation at its lowest level may decide to impose excessive hikes on interest rates (to contain inflation), which may in turn curb credit and consequently constrain the economy from expansion. Thus the authorities may be able to contain inflation, but this would be done at the expense of economic growth and output,” he says.

Gaolathe was making these comments against the background of the recent panic and confusion over whether there is a liquidity crisis in Botswana’s banking sector. At a time that BoB’s Governor, Linah Mohohlo, was waving off concerns about this crisis to a gaggle of journalists, the MP had noticed an urgent motion to the parliament Speaker in which he called on the country’s monetary authorities to resolve such crisis ÔÇô or ‘credit crunch’ as he explicitly calls it in the motion.

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