Tuesday, September 29, 2020

BoB responds to rising inflation with rate hike

The Central Bank recoiled at the rising fuel induced inflationary pressures on Thursday and adjusted interest rates upward by 50 basis points (half a percent) as part of a global bid by central banks to intervene on weakening global economic systems that threaten to drive the world economy into a recession similar to that last seen in 1970.

In a statement released on Thursday, the bank said the Monetary Policy Committee, which met during the day, decided to increase the bank lending rate ÔÇö-central bank lending rate to commercial banks ÔÇöÔÇö by 50 bps to 15.5 percent, a move which will stretch-out the end consumers in the coming days as commercial banks respond to the move.
“Since October 2007, inflation trended upwards and has remained above the Bank’s objective range of three-to- six percent, mainly reflecting the global increase in the price of food and oil,” the central bank’s MPC said in a statement.

According to the Central Statistics Office’s consumer price index for the full May month, inflation jumped up by one percent to 12.1 percent against the 11.1 percent recorded at the end of AprilÔÇölargely attributed to a spike in petrol and diesel prices. The prices in the sub-sector shot up by 42 percent over the past 12 months and they were up from 34.6 percent against those of April.

On Wednesday, the government adjusted the prices of fuel pump price, a move expected to have ripple effects on the economy as it tries to compliment the coffers of the petroleum fundÔÇöa mechanism used to subsidise motorists from the vagaries of the international fuel price spikes.

Both leaded and unleaded petrol moved to 8.35 per liter, after an increase of 87 thebe per liter, while diesel added P 1.35 to a liter to make it P 9.48 per litre.

Right on the heels of the government increases during mid-week, crude oil prices climbed again after Thursday close on the electronic trading. The move saw the crude oil moving from US $ 70 per barrel last year around this time to US $ 130 per barrel but slightly touching US $ 140 per barrel last week, but predictions are that it will reach US $ 150 per barrel by the end of the year.

Bloomberg reported that crude oil prices edged up on electronic trading after Israel held a rehearsal for bombing attack on nuclear facilities in Iran, OPEC second largest- producer.
“Crude for July delivery climbed as much as 72 cents or 0.6 percent to US $ 132.65 a barrel in after electronic trading on the New York Mercantile Exchange. It was at US $ 132.36 a barrel at 3:10 p.m Singapore time,” the Agency reported.

In London, the Brend crude oil for August delivery gained as much as US $ 1 or 0.8 percent to US $ 133 a barrel.

“It is now expected that inflation will maintain an upwards trajectory in the short term, up to the forth quarter of the year before declining in the early 2009,” Bank of Botswana said, adding that the “risk to the inflation outlook continue to be predominately upwards, due to, among other things, growing pressure on demand with a likely further increase in fuel and associated second round effects”.

It said by tightening the monetary policy stance it is trying to pre-empt the second round effect in a bid to sustain an illusive low medium term inflation path.

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The Telegraph September 30

Digital edition of The Telegraph, September 30, 2020.