Thursday, May 30, 2024

Bank of Botswana’s bullish obsession with inflation vis-├á-vis other fundamentals downplays hard economic realities

As it has now become tradition this time around, mid last week the Governor of Bank of Botswana, Linah Mohohlo launched the Monetary Policy Statement.


Other than stating the obvious and also using statistics, to hide the truths, the Statement, is generally a replay of similar events from the previous years.


As with previous ones before it, the saddest part of the Monetary Policy Statement this year is its continued vagueness on how critical matters of the economy, especially in so far as they relate to the fiscal policy will be responded to by the monetary authority.


Below we quote in part, the speech by Ms Mohohlo to highlight the palpable vagueness and acute ambiguity we are referring to.


The following quotation, in a big way also highlights the level at which the Bank of Botswana is prepared to go to pamper over the growing challenges that are now coming its way as a monetary authority.


“So far as the exchange rate policy is concerned, it will continue to support domestic industry in achieving international competitiveness and contribute to economic diversification. As outlined by the Honourable Minister of Finance and Development Planning in this year’s Budget Speech, the Bank’s implementation of the exchange rate policy in 2016 will entail an upward crawl of 0.38 percent.  In line with the country’s trade relations with the outside world, the weights in the Pula basket will be maintained at 50 percent each for the South African rand and the SDR. I hasten to add that this is the first time since the crawling band exchange rate policy was introduced in 2005 that the crawl will not be downwards.  It is a reflection of relative success in maintaining domestic inflation close to the lower end of the medium term objective range.”


Even for people who are inclined to be charitably sympathetic to BoB, it is immensely difficult to break down just what the above loaded statement really comes down to.


But the worst was yet to come.




“Overall, for 2016, both external and internal pressures on inflation are likely to be limited, and it is projected that inflation will continue to be within the 3 ÔÇô 6 percent range in the medium term.  As always, the upside risk to the inflation forecast includes any upward adjustment in administered prices beyond current projections. Other risks are food prices, should the drought conditions persist in the region. Conversely, downside risks to inflation may arise from restrained global growth and possible further decline in commodity prices.”


It is hard to believe that Bank of Botswana can allow itself to be so ambivalent, general and lacking on specific details even on matters that are so pertinent to the overall health of the economy, especially in the face of growing tumult that the world economy is already going through.


It is disheartening to note that the speech says little about how the Bank intends to respond in the face of already blowing global economic headwinds and market volatility which will inevitably sweep down Botswana’s economy along its path.


Thankfully it is clear from reading the speech that the Bank is awake to the realities of declining rates of growth. Yet in the same token, it is a travesty that the Bank does not go far enough to inspire confidence by stating the extent of its preparedness to react adequately to help the economy circumvent and avert the looming shocks.


There is growing conventional belief that the era of fiddling with interest rates has run its course and that Central Banks would now have to come up with new tools to respond to new challenges.


One would have expected from the Governor what chances Botswana has against a world economy that is clearly on a path to the meltdown we last saw in 2008/9.


A growing number of experts are united that the global economy is headed for recession. Yet we do not hear from our monetary policymakers what tricks they have up their sleeves to at least contribute towards preparing the economy towards a soft landing.


It does not come out clearly from the Bank of Botswana what other options there are beyond the traditional one of interest rates.


These are the issues that one would have expected from what is no doubt the most important speech that the Governor will make this year.


Additionally one would have expected to hear in clear terms what BoB’s views are on Government decision to come up with Economic Stimulus Package. Is the proposed ESP radical enough to help boost the flagging economy? Is that ESP clearly spelt out as to allow for all the economic players, including BoB to adequately respond in kind in anticipation of likely effects, impacts and pitfalls?


Does the BoB expect enough demand to come out of the proposed ESP which many detractors are already dismissing as politically laden and economically moribund?


However, to her credit, the Governor had this to say “…… in contrast to this positive outlook, the risks to economic growth that currently cloud the global and regional landscape are at more elevated levels, and this requires vigilance from policymakers.”


This in our view should have formed the linchpin of the Governor’s speech rather than place as a footnote and make reference to it only in passing.


For many ordinary Batswana the economy is already in trouble. Yet this does not come out specific explicitly enough.


We have always criticised Bank of Botswana of staying too close to its abstract statistical derivatives and far away from the lives of ordinary people.


And in our view nothing better highlights that disposition more succinctly than the Monetary Policy Statement delivered by the Governor during the week.


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