Thursday, July 18, 2024

Bank Rate reduction meant to stimulate growth- Matambo

Parliament has been told that the Central Bank from time to time reduces the Bank Rate, which is a benchmark to commercial banks, in a bid to promote higher rate of economic growth and employment creation through an increase in demand and investment.

Minister of Finance and Development Planning, Kenneth Matambo defended the move saying it signals direction of Monetary Policy based on Bank of Botswana’s assessment of the outlook for inflation and economic performance.

Matambo added that the change results in similar adjustments of interest rates by other financial institutions, notably commercial banks. Equally, the funds raised through borrowing contribute to growth in investment and consumption which tend to increase overall economic activity.

“In deciding on the lending rates charged to clients, commercial banks take the prime lending rate as reference point and the additional charge over and above the prime lending rate is determined by the risk associated with such lending”, Matambo said.

BoB’s Monetary Policy Committee (MPC) last month decided to maintain the Bank Rate at 8 percent. The policy rate was lowered by half a percentage point to 8 percent following a consecutive 0.5 slash of the bank rate which was initially packed at 9.0 percent by the beginning of the year.

The reserve statistics indicate that share of credit to households sector in the total credit increased from 55.0 percent in July to 56.7 percent during the month under review. The BOB data shows that year on year, credit growth fell to 19.4 percent from 20.4 percent in July rising from 25.9 percent to 27.4 percent for households and falling from 14.2 percent to 10.5 percent for businesses.

At the same time, despite Matambo’s assurance and lowered rates, domestic businesses seem to have stayed away from ‘too much’ borrowing as they snapped only P548 million (3.3 percent) of the total credit from the local commercial banks during the month of August according to Bank of Botswana latest financials.

BOB data for August indicate that total deposits held by commercial banks increased by 89 million (0.2 percent) to P48 762 million from P48 673 million in July. Deposits from central government, local government and parastatals reportedly went down by P78 million (37.5 percent), P252 million (10.9 percent) and P1 170 million (18.8 percent) respectively. At the same time the Bank of Botswana financials indicate that business accounted for 72.7 percent of total deposits compared to 22.8 percent of households.

At the same time economic growth has lately been accompanied by a net expansion in job numbers according to President Ian Khama. Available figures show that as of 2012 unemployment (18 and over) stood at 17.5 percent, down from 23.5 percent at the beginning of 2007.

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