The meeting of the Monetary Policy Committee (MPC) of the reserve bank held on Monday has decided to maintain the bank rate at 7.5 percent citing a positive medium term outlook of the domestic economy.
With inflation forecast being in the 3 ÔÇô 6 percent medium term objective range, the Bank of Botswana says the influence of demand on economic activity is projected to be modest, largely reflecting trends in government expenditure and personal incomes.
“It is estimated that GDP expanded by 5.9 percent in 2013, reflecting growth of 10.6 percent and 5.2 percent in mining and non-mining output, respectively. It is expected that non mining economic activity will remain below the potential level in the medium term”, the bank said in a statement.
Available figures show that domestic inflation was stable, at 4.5 percent, in April and May 2014, and was within the Bank’s medium term objective range of 3 ÔÇô 6 percent. The central bank said on Monday that weak domestic demand and the projected benign external price developments contribute to the positive inflation outlook in the medium term.
However the bank warned that this outlook could be adversely affected by any unanticipated large increase in administered prices and government levies, as well as higher than currently forecast international oil prices.
BOB said in its recently released annual report that it would stick to its accommodative monetary policy to help support economic growth that is set to slow because of power shortages. Kealeboga Masalila, the head of monetary and financial stability at the Bank of Botswana said that the domestic economy grew by 5.9 percent last year.
“Electricity and water challenges will hinder growth. Diamond production and an accommodative monetary stance will help to support economic activity via interest rate adjustments,” Masalila said.