Bank of Botswana (BoB) could leave the cost of borrowing unchanged in 2015 as inflation levels remain within the target range, said a local leading research house, Motswedi Securities. However, the investment firm warns that the only threat to prices is imported inflation from South Africa, but that could be offset by a stronger Pula compared to the South African Rand (ZAR).
“….we expect the central bank to keep the bank rate unchanged this year. The Bank of Botswana is in no hurry to adjust the rate after the last 100bps to 6.5% cut in February this year and given that inflation will remain within the 3- 6% objective range due to relatively lower fuel prices, food prices and subdued domestic demand,” said Motswedi Securities.
“The increase in South Africa’s inflation might raise prospects of an increase in SA interest rates and this might compel the Bank of Botswana to follow suit, although at a much later stage,” it added.
It said however, ‘we cannot completely eliminate the probability of another small bank rate cut by the Bank of Botswana before the end of this year should the country’s GDP growth softens and credit growth to the business sector doesn’t grow in line with expectation.’
Last week, the Bank’s Monetary Policy Committee decided to maintain the Bank Rate at 6.5 percent, arguing that, “The current state of the economy and both the domestic and external economic outlook, including the inflation forecast, suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the Bank’s medium-term objective range of 3 ÔÇô 6 percent”.
It was followed by a 0.1 percentage point decline of year-on-year inflation to 3.0 percent n the back of declines in the Food & Non Alcoholic Beverages group as they reduced by 0.2 points while the Transport section eased by 0.1 percentage point.
Motswedi Securities however warned that the numbers could pick up in the coming months and close the year at levels around 4 percent mainly on base effects. This will still be within the BoB’s objective range of 3- 6 percent.
The research house that also doubles as a stockbroking firm also said upward pressures could also unfold on the back of cost push inflationary pressures from South Africa after recent SA mining and manufacturing data pointed to a sluggish growth of Africa’s second largest economy, leading to a weaker rand which breached its 13 year low early this month.
The South African inflation has also been on an increase (currently at 4.6%y/y) raising prospects of a possible increase in interest rate in SA, ‘hence we saw SA Reserve bank maintaining rates at 5.75%.’
“We expect these upward inflationary pressures in SA to be exported to our economy, though a stronger Pula will help absorb some of the impact as the Pula continue to strengthen against the rand (up 2% on a year to date),” said Motswedi Securities.
The Bank Rate was cut in February to 6.5 percent, which is a historic low in a market where cost of borrowing has been high and indebted society.