The Monetary Policy Committee (MPC) of the Bank of Botswana on Thursday maintained the key Monetary Policy Rate (MoPR) at 2.65 percent saying it does not anticipate a demand-driven inflationary pressure but rather an elevated inflation in the short term, primarily due to supply-side factors and related second-round effects and entrenched expectations.
Bank Governor, Moses Pelaelo told journalists shortly after the MPC meeting that due to the bank’s projection on the domestic economy, which he said will operate below full capacity in the short to medium term, the MPC decided to maintain the MoPR at 2.65 percent to support the nascent economic recovery.
According to Statistics Botswana’s Consumer Price Index (CPI) latest figures, inflation decreased from 14.6 percent in August 2022 to 13.8 percent in September 2022, remaining above the Bank’s medium-term objective range of 3 – 6 percent.
Pelaelo said that the MPC projects that inflation will remain above the central bank’s objective range into the medium term but trend downwards from the fourth quarter of 2022 and fall within the objective range from the third quarter of 2024.
“The projected decrease in inflation in the medium term is due to the dissipating impact of the earlier increases in administered prices, subdued domestic demand, current monetary policy posture, expected decrease in trading partnercountries’ inflation and international commodity prices,” said Pelaelo.
The central bankers have for several months now cautioned that risks to the inflation outlook in Botswana are skewed to the upside. The risks, according to the Bank of Botswana economists include the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production.
On Thursday, Pelaelo said that the risks for higher inflation than currently projected relate to possible annual adjustments of administered prices not included in the forecast; short-term consequences of import restrictions; second-round effects of the recent increase in administered prices; upward pressure on wages across the economy emanating from the increase in public service salaries; and entrenched expectations for higher inflation, which could lead to higher general price adjustments.
Meanwhile firms across various sectors of the economy are projecting a rise in the cost of doing business, thanks largely to an anticipated increase in input costs, especially fuel price increases.
A Business Expectation Survey carried by the Bank of Botswana for the second quarter of 2022 and the year 2023 shows that local firms expected cost pressures to continue rising in the second quarter of 2022, mainly attributable to the increase in input costs.
The BES collects information on perceptions about the prevailing state of the economy and expectations during the survey period from a sample of 100 businesses in about thirteen economic sectors, namely: Agriculture, Forestry and Fishing; Mining and Quarrying; Manufacturing; Water and Electricity; Construction; Wholesale and Retail; Transport and Storage; Accommodation and Food Services; Information and Communications Technology; Finance, Insurance and Pension Funding; Real Estate Activities; Professional Scientific and Technical Activities; and Administrative and Support Activities.
The latest BES report shows that the respondents’ expectations about domestic inflation were higher than the Bank of Botswana’s 3 – 6 percent objective range in 2022 and 2023.
