Central Bank gave the industry and consumers a Christmas present on Friday by reducing the benchmark interest rates as it responded to the easing of inflation in the recent past.
Bank of Botswana said on its website that at its meeting, the Monetary Policy Committee (MPC) decided to reduce the Bank Rate by 1 percentage point to 10 percent.
“Reflecting the continued easing of inflation over the past year, the Bank Rate has now been reduced by a cumulative 5.5 percentage points since December 2008”, the Bank said.
In November, inflation fell further, by 1.9 percentage points, due to the falling away of the impact of the special alcohol levy introduced the previous year, and, at 5 percent, is comfortably within the objective range of 3 ÔÇô 6 percent.
While fluctuations around this level can be expected in the coming months, inflationary pressures remain generally benign in the context of subdued growth, and inflation is expected to stabilise within the objective range during 2010.
However, the potential for upside inflationary risks to emerge remains and the Bank continues to be committed to responding appropriately to all economic and financial developments. This is so as to maintain price stability in the medium term, which contributes to sustainable economic growth.
Meanwhile, In November, annual inflation as measured by the Consumer Price Index (CPI) declined by 1.9 percentage points to 5.0 percent, from 6.9 percent in October.
As well as being within the Bank of Botswana’s medium term objective range of 3 ÔÇô 6 percent, this is the lowest rate of inflation recorded in Botswana since mid-1972.
“The decline was mainly due to the removal of the impact of the special levy on alcohol sales introduced in November 2008”, said Bank of Botswana.
As a result, inflation for alcoholic beverages and restaurants and cafes fell from 41.8 percent to 9.7 percent and from 19.1 percent to 12.2 percent, respectively.
Declines in inflation were also recorded for food and non-alcoholic beverages (from 6.7 percent to 6.1 percent), housing, water and electricity (from 3.5 percent to 3.3 percent), and furnishing, household equipment and routine maintenance (from 10.5 percent to 10.4 percent).
However, this was partially offset by the further slowing of deflation for transport (from -6.7 percent to -2.3 percent) as falling fuel prices in the second half of 2008 continue to drop out of the inflation calculation. Inflation also rose marginally for health (from 5.2 percent to 5.5 percent), clothing and footwear (from 8.7 percent to 8.9 percent) and communication (from -0.4 percent to -0.3 percent).
Both measures of core inflation declined in November: the trimmed mean fell slightly by 0.5 percentage points from 5.8 percent in October to 5.3 percent; while, excluding administered prices (which removes the base effects related to fuel prices), and inflation fell much faster, from 11.1 percent to 7.7 percent.