Thursday, April 25, 2024

Boon for Botswana consumers as oil prices revised downwards

Botswana consumers could still enjoy the impact of lower oil prices in the future following the revision of crude price forecasts by the World Bank. The bank has lowered its 2015 forecast for crude oil prices from $57 per barrel in its July report to $52 per barrel.


The bank’s Commodity Markets Outlook said the revised forecast reflects a further slowing in global economic performance and high current oil inventories.


“We see a five-year-long slide in most commodity prices continuing in the third quarter of 2015. There are sufficient inventories of oil and other commodities and demand is weak, especially for industrial commodities, which is why prices may stay persistently low,” said John Baffes, Senior Economist and lead author of Commodity Markets Outlook.


The World Bank has said in the past that for many oil-importing countries, lower prices contribute to growth and reduce inflationary, external, and fiscal pressures.


The Botswana inflation decreased from 3 percent in August to 2.9 percent in September 2015, mainly due to the downward adjustment in domestic fuel prices.


“As stated previously, we anticipated this deceleration following the reduction of local fuel prices during September. The deceleration in inflation was also 10 basis points slower than the previous month’s inflation rate,” Tshephang Loeto, Analyst, Investec Asset Management said.


Transport, the second biggest category accounting for 19 percent of the CPI basket, fell by 6.5 percent compared to the corresponding period last year. Month-on-month, the category declined by 1.1 percent. The effect of the lower fuel price was evident in the ‘Operation of personal Transport’ sub-category, showing a decline of 11.7 percent year-on-year. 


Bank of Botswana this week keep the cost of borrowing steady when it left the Bank Rate unchanged at 6 percent arguing that low domestic demand pressures and subdued foreign price developments contribute to the positive inflation outlook in the medium term.


However, this is subject to downside risks arising from the sluggish global economic activity and the resultant weakening commodity prices. The inflation outlook could be adversely affected by any unanticipated large increase in administered prices and government levies as well as international oil and food prices beyond current forecasts.


“The current state of the economy and both the domestic and external economic outlook, including the inflation forecast, suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the Bank’s medium-term objective range of 3 ÔÇô 6 percent,” stated the bank.


“In the circumstances, the Monetary Policy Committee decided to maintain the Bank Rate at 6 percent.”


The price of Brent crude oil has fallen below $50 a barrel for the first time since May 2009. According to BBC, many observers expect the price of oil to fall further as North American shale producers continue to supply increasing quantities of oil and gas, and the oil-producing group Opec resists calls for cuts in production to support prices.


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