Despite pressures from international prices, inflation is likely to fall within the Bank of Botswana (BoB) target band in the middle of 2011, while expectation is to see the Rand weakening and the Pula gaining its lost glory, a new economic review has suggested.
Bifm Economic Review for the 4th quarter of 2010 showed inflation has largely behaved itself in the second half of last year without great surprises, but warned that international food prices may impact on the numbers going forward.
“Despite, this, it remains our forecast that inflation in Botswana will fall sharply in the second quarter of 2011, and we anticipate inflation of around 5 percent by mid-year,” stated the report.
Bank of Botswana has set itself a 3- percent target band for inflation, but CPI closed the year higher at 7.4 percent, way above the range.
“Inflation may start rising before the end of 2011, but we still expect it to remain below 6 percent ÔÇô and hence within the Bank of Botswana’s objective range ÔÇô through to the end of the year,” added the review authored by Dr Keith Jefferis, who is the former Deputy Governor of the Central Bank.
Investec, the local asset manager said for the first few months of the year, inflation is still expected to remain above the 3-6 percent target band, with CPI for January expected to be 7.6 percent.
It said the numbers will continue to be driven by rising commodity prices (food and fuel prices), strong domestic demand as well as the continued stronger rand, as about 80 percent of our imports are from South Africa.
The Pula depreciated against the ZAR (South African Rand) by 7.4 percent during 2010, to end the year close to parity (P1 = R1.027 as at 31 December).
Bifm said the exchange rates movement has raised concerns about the impact on inflation through rising import prices.
The review stated that the events reflected the Pula weakness were wrong arguing that the depreciation against the rand has been offset to some degree by appreciation against the US dollar.
Overall, the Pula depreciated by 2.6 percent during 2010, in line with the crawling peg-basket arrangement.
“The general expectation is that the Rand will weaken during 2011, and that the situation will ‘normalise’ with the Pula strengthening against the rand,” the review stated.
“However, this was also the expectation at the beginning of 2010, providing further evidence that predicting exchange rates, especially short-term movements, is beset by uncertainty,” it said.
The Pula lost ground for the first time towards the end of last year prompting punters to suggest brighter future for Botswana goods as they expected to be competitive against their peers in South Africa.
“What we have been seeing is that the pula has been loosing┬ástrength against the rand. I think this is going to stimulate our economy because people will now start to look inward instead of┬ágoing to South Africa to buy few items,” head of Stockbrokers Botswana, Geoffrey Bakwena, said in a Telegraph poll then.