Wednesday, September 30, 2020

Central Bank slashes benchmark rate as it heads towards single digit

Bank of Botswana (BoB) seems to be following international trends by its consistent monetary policy easing with this week’s announcement of a further Bank Rate cut by another 1 percentage point in line with expectations.

A statement on the Central Bank’s website noted this week that its secretive, Monetary Policy Committee (MPC) has decided to slash the rates by 1 percentage point from 14 percent to 13 percent.

“This is in the context of the continued decline in global economic activity, as well as weaker domestic economic performance,” said the Bank, headed by Linah Mohohlo.

Central Banks around the world, especially those in developed economies of US and UK have consistently reduced interest rates to help prop up drying liquidity as a result of the global credit crisis.

“The current high rate of borrowing further exacerbates the negative economic environment in which businesses operate. The budget speech has somewhat addressed fiscal policies intended to stimulate the economy; monetary policy now has to be deliberately tailored to complement the fiscal initiatives,” Standard Chartered Bank said this year.

The move followed last week’s Consumer Price Index (CPI) numbers that showed inflation remained unchanged at 11.7 percent as food prices and energy prices stabilised.

“In reducing interest rates, the Bank recognises the favourable inflation outlook in the medium term, which is the relevant time frame for monetary policy, and provides scope for monetary policy easing,” the Bank added.

The Bank noted that the constant inflation between February and March 2009 reflects offsetting movements for categories of goods and services, particularly as the increase in food and manufactured items inflation offset the declines in prices for fuel and telecommunications.

Factors underlying the outlook include the world-wide economic recession and its stabilising impact on international oil prices, as well as the projected below-trend performance of the domestic economy.

Upside risks to this outlook relate to a possible significant rise in administered prices and government levies. “However, going forward, the continued decline in global demand due to the world-wide weakening of the global economic activity and lower commodity prices, as well as weaker domestic economic performance, would contribute to lower inflationary pressures,” it said.

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