Bank of Botswana (BoB) has maintained the benchmark rate steady at the meeting of its Monetary Policy Committee (MPC) saying the direction of inflation remains under control.
The central bank under the leadership of Linah Mohohlo has decided to keep the Bank Rate at 6.5 percent arguing that the medium-term outlook for price stability remains positive.
“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,” said BoB this week.
“In the circumstances, the Monetary Policy Committee decided to maintain the Bank Rate at 6.5 percent,” it added.
Botswana’s GDP growth is estimated at 4.4 percent in 2014, thus reflecting the 4.5 percent and 4.4 percent expansion in mining and non-mining output, respectively. Inflation increased from 2.8 percent in March to 3.1 percent in April 2015, following the upward adjustment in electricity and water tariffs.
According to the bank, modest domestic demand pressures and benign foreign price developments contribute to the positive inflation outlook in the medium term which is subject to downside risks associated with weak global economic activity and subdued commodity prices.
“However, the shortfall in regional food production presents an upside risk to inflation. Furthermore, the inflation outlook could be adversely affected by any unanticipated increase beyond the current forecasts for administered prices, government levies and international oil prices.”
The minerals sector, especially diamond mining is still the largest contributor to government revenues, but the share is declining as Southern African Customs Union (SACU) receipts have increased over years.
Former BoB Deputy Governor and Managing Director of Econsult Botswana, Dr Keith Jefferis told a Resource Sector conference this week that there is a need to mobilise more revenues from domestic sources.
Diamonds accounted for almost 80 percent of exports in 2014, but the mineral government’s revenues to decline steadily as a share of GDP (due to little real growth and diminishing diamond margins), according to Jefferis.