The central bank – Bank of Botswana (BoB) has maintained the all-time low bank rate amid subdued inflation while the household debts continue to soar under the most favourable borrowing market in the history of the country.
The central bank’s Monetary Policy Committee on the sixth and last meeting of the year decided to keep the bank rate at 4.75 percent, the lowest rate in the history of modern Botswana. The rate hit the new lows in September after MPC slashed it from 5 percent, ending a three year and nine months of the same rate.
At 4.75 percent bank rate, it has been a steep decline from the highs of 10 percent in 2009, which means the benchmark rate has fallen by 52.5 percent in the last decade. The bank rate cuts have been part of larger efforts by Bank of Botswana to stimulate demand in a low inflation rate environment, which in October declined to its lowest level in over 22 years, registering 2.4 percent which is below the central bank’s objective range of 3 – 6 percent.
Meanwhile, the low interest environment has motivated households to pile on debt, with households now sitting on record P38.5 billion of unsecured loans, mortgages, motor vehicle loans and credit cards.
The consumer debt is now at the highest level it has ever been in the history of the country, coinciding with the historic low bank rate. The rate cuts make it cheaper for households and businesses to borrow and refinance existing debt, which driven the total credit extended by banks to P61.1 billion, also setting a record of the highest debt held by banks.
While low bank rates usually hurt bank income, they are still able to make money with average returns on loans currently at 10.59 percent, a less decline of 31.2 percent in returns over the 10-year period compared to the 52.5 percent decline in bank rates from 2009 to 2019.