The central bank responded to the rising uproar┬áover the money it is losing through┬á Bank of Botswana Certificates (Bobcs) by┬á lifting up the commercial bank’s┬ácapital requirement┬á reserve from┬áfive percent to P 2.6 billion, the Bank┬áhas said.
In a statement, it said it┬áhas decided to leave the Bank Rate on hold at 10 percent, but added that it has considered to increase the┬ácapital requirement reserve from five percent to 6.5 percent or P 2.6 billion in an attempt to rein in inflation.
The new measure became effective on Monday.
┬áThe capital requirement reserve is┬áa┬ápercentage of the total deposits, which┬ácommercial banks have to place┬áwith the central bank. The money does not earn┬áinterest.
The move coincides with the publication of Botswana Financial Statistics that┬á indicated┬á┬á deposits┬á to all┬á commercial┬á banks┬á stood at P 40 billion┬á as at┬á August this year while┬á loans and advances spiked┬á to P 21 billion largely driven by┬á household debt.
However,┬áthe report indicated that┬ávalue of┬áBobcs was steadily increasing, hitting┬áslightly above P 19 billion┬áat the same period.
Interest generated from Bobcs┬á┬á ÔÇö an instrument used for mopping up excess liquidity in the marketÔÇö has turned into the mainstay of the local commercial banks compared to their┬ácore business.┬á The┬ádevelopment has┬árecently┬áled to a scathing attack on the┬áBank of Botswana Monetary policy, which seems to favour┬ácommercial banks┬áthan the interest of the country.
The bank has heavily relied on the bank rate and┬áBobcs to curb┬áa spike in the inflationary rate.┬á
However,┬á Professor┬á Roman Grynberg’s research┬á that showed that, under the current tools used by┬á Bank of Botswana , commercial banks┬á are making huge┬á profits┬á from unbelievable interest rates while at the same time┬á getting huge returns from Bobcs at no risk.
The central bank┬á has┬á defended its┬á tools┬á used┬á in its “effective┬á monetary policy”,┬á such as the Bobcs and the setting of the bank rate, which it said┬á┬á have been successful in controlling┬á excess liquidity in the market .
The Bobcs were introduced in 1991 as a form of moping excess liquidity in the market but later were curved as a reserve for the chosen commercial banks – mostly British and South African owned banks.
Professor Grynberg had┬áquestioned the rationale of paying the local commercial banks higher interest rates than┬áwhat┬áthe┬ácountry┬áis getting from investments┬áoverseas in the form of foreign reserves.
He added: “There are┬ávery considerable direct costs of the current monetary policy. The most significant are the cost of interest paid to banks that have every symptom of earning┬ávery high profits by the standard of Sub Sahara Africa.
“Not only are the costs substantial i.e. 2.5 percent of the GDP in 2008, up from 1.1 percent in 1999,” he said.
He said the interest that is being paid to the banks comes from national assets being foreign reserves that constitute the bulk of┬áthe central bank’s┬áinterest earnings.
This week one┬á financial analyst┬ájoined the chorus;┬áalthough he welcomes┬áa rise in requirement reserves, Bank of Botswana should┬áopen up to more banks so that┬á interest rates┬á charged┬á on┬á loans and advances are market driven.
“Probably┬áthe country is┬áun banked. I think what we should look at is the possibility of opening up for more banks, so that they can compete for customers on the basis of interest┬áthey charge,” one analyst said.