The central bank has maintained the bank rate at 3.75 percent during the first Monetary Policy Committee meeting of the year, citing the sluggish economy that is expected to operate below capacity in the short and medium term.
In a statement released by Bank of Botswana shortly after the MPC meeting on Thursday, the rate was maintained as risks to the inflation outlook were found to be balanced, thus enabling the central bank to continue with its accommodative monetary policy. The bank rate was last reduced in October from 4.25 percent, following another cut in May to 4.25 percent.
The primary objective of the central bank’s monetary policy is to achieve price stability, which is defined as a sustainable level of inflation that is within the medium-term objective range of 3 – 6 percent.
Statistics Botswana reported that inflation rate in January rose to 2.3 percent, up from 2.2 percent in December. The rise in prices is expected to be felt this year following a three-year decline in the inflation rate, which averaged1.9 percent last year, down from 2019’s average of 2.8 percent, 2018’s 2.2 percent and 3.3 percent in 2017.
The central bank governor Moses Pelaelo says the accommodative stance will not create inflationary pressures going forward since the anticipated increase in prices are mostly from government actions.
“The forecast increase in inflation towards the upper end of the objective range is partly due to transitory factors, such as value added tax, sugar tax and fuel levy,” the governor said on Thursday.
“In the circumstances, the MPC decided to continue with the accommodative monetary policy stance and maintain the Bank Rate at 3.75 percent. The Bank stands ready to respond appropriately should the need arise,” he added.
Though the bank rate is at record lows, and should have made new loans cheaper, the annual growth in commercial bank credit decreased from 7.6 percent in December 2019 to 4.5 percent in December 2020.
“The deceleration in credit growth is, in part, indicative of the somewhat timid demand for credit, as well as the restrictive supply of credit by banks on account of uncertainty related to the COVID-19 pandemic,” Bank of Botswana said in the Monetary Policy Statement for 2021 released on Wednesday.