As expected, Botswana’s central bank kept its benchmark interest rate unchanged on Thursday saying the current level was consistent with efforts to support the recovery of the domestic economy.
At the meeting held on August 20, 2020, the Monetary Policy Committee (MPC) of the Bank decided to maintain the Bank Rate at 4.25 percent according to Moses Pelaelo – BoB Governor.
Pelaelo said that maintaining the Bank rate at 4.25 percent is in line with the bank’s accommodative monetary policy stance which is in line with the country’s short-term adverse developments which occurred against a potentially supportive environment including accommodative monetary conditions.
In the past few months, the Botswana government also implemented reforms to further improve the business environment in a bid to mitigate the impact of COVID-19.
“These would generally be positive for economic activity in the medium term,” said Pelaelo.
The BoB MPC decision comes at a time when the International Monetary Fund (IMF) has made an aggravated guess on Botswana economy saying it will shrink by 9.6 percent this year, a revision from the 5.4 percent that was projected in April.
The IMF projection, just like the government’s does not begin to describe the economic collapse which has now stretched into the second half of the pandemic year.
The Central bank this week joined and sang a chorus that says economic projections by the Ministry of Finance and Economic Development and the IMF suggest a deterioration in economic growth for Botswana in 2020.
While the IMF pegs the economic growth to a negative growth of 9.6 percent, the Economic Development Ministry says the economy will go down by 8.9 percent – a figure lower than an earlier forecast of 13.1 percent negative growth.
“The disparity in forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand,” said Pelaelo on Thursday.
Pelaelo who was addressing a media brief via a virtual press conference from the bank’s head office in the capital Gaborone told financial journalists that the COVID-19 pandemic and consequent containment measures have severely throttled economic activity globally and domestically as production, supply chains, project implementation and provision of goods and services are constrained.
“Consumption and spending are disrupted, hence domestic demand pressures and foreign prices remain subdued. Consequently, overall risks to the inflation outlook are skewed to the downside”, said Pelaelo.
The monthly Consumer Price Index (CPI) report released by Statistics Botswana shows that the annual inflation rate in July was 0.9 percent, same rate as June. This was the lowest rate since available records began in January of 1997, as prices slumped further for transport by 6.9 percent, following another decline of 6.7 percent in June. Recreation and Culture was down 0.7 percent compared to decrease of 0.8 percent in June.
In contrast, inflation edged higher for food & non-alcoholic beverages (3.9 percent vs 3.6 percent), housing & utilities (5.9 percent vs 5.7 percent) and alcoholic beverages & tobacco (6.6 percent vs 5.4 percent). On a monthly basis, consumer prices were up 0.2 percent, after falling 1.2 percent in the previous month.
While the inflation rate might be at it its lowest, Pelaelo on Thursday said domestic inflation may rise above current forecasts if international commodity prices increase beyond current projections and in the event of upward price pressures occasioned by supply constraints due to travel restrictions and lockdowns.