Central Banks around the world use interest rates to control inflation if they think it is out of order.
With the recent surge in the numbers for two consecutive months in the local economy, market watchers say Bank of Botswana (BoB) may have to wait to see the direction of inflation first rather than running to make adjustment on the interest rates.
Analysts have suggested that inflation numbers may move within Bank of Botswana’s target range of between 3 to 6 percent objective range.
“Despite the rise in inflation, we expect the BoB Monetary Policy Committee to leave interest rates unchanged at its next meeting as the bank expects inflation to fall within its 3 to 6 percent objective range early in 2011,” said Motswedi Securities after the Central Statistics Office (CSO) announced the May Consumer Price Index (CPI) figures.
Statistics from the Central Statistics Office (CSO) showed last week that inflation as measured by the Consumer Price Index (CPI) continued on an upward trend in May rising to 7.8 percent year-on-year from 7.1 percent year-on-year in April.
The rise in inflation was in line with expectations following the increase in electricity tariffs by an average of 30 percent on May 1 and fuel prices, which were adjusted by an average of 13 percent towards the end of May.
“Going forward, we expect inflation to stabilise as inflationary pressures dissipate due to weaker household disposable incomes and slower growth of government spending,” the brokerage said.
The rise in the May rate was on the back of increases in almost all the basket items except the clothing & footwear, furnishing, household equipment & routine maintenance, transport, recreation & culture.
Significant increases were in the alcoholic beverages, tobacco & narcotics group which rose significantly to 8.1 percent y/y in May from 6.7 percent y/y in April.
Food & non alcoholic beverages group rose to 4.6 percent in May from 3.8 percent the previous month, while health rose to 3.1 percent in May from 2.9 percent in April.
Decreases were in clothing & footwear down to 7.8 percent y/y in May from 8.2 percent y/y in April, furnishing house hold equipment fell to 9.2 percent y/y from 9.4 percent y/y the previous month. The education group was stable at 5.8 percent y/y. Inflation is expected to stick around 7- 8 percent for the rest of the year and slow down early 2011.