Sunday, May 29, 2022

Commercial banks cheer recent Bank Rate cut

The Bank of Botswana (BoB) recently cut the Bank Rate to 8 percent at the meeting of its Monetary Policy Committee (MPC).

The move was made following the trending down of Consumer Price Measured inflation since the beginning of the year. Inflation fell to 5.8 percent in June, moving inside the objective range of 3 – 6 percent, and is expected to remain within that range during the second half of the year.

On balance, the outlook for inflation remains positive, and is consistent with a more accommodative policy stance.

Barclays Bank of Botswana Finance Director, Lipalesa Makepe, believes the rate cut will be well received and is appropriate in the current environment where inflation is controlled and economic growth slowing.

Makepe said the decision to reduce the bank rate should provide additional stimulus for the economy. He added that small business enterprises and households would particularly welcome it.

“As a commercial bank regulated by the Bank of Botswana, we have a duty and responsibility to ensure that all monetary policy decisions are effected within the entire banking market in a timely manner. We, therefore, have already taken the necessary steps to inform our customers of the revised rates in line with this decision through various media channels,” said Makepe.

Monetary policy decisions are a regular and normal occurrence in banking and recent trends show that these statements are issued every two months, with some occasionally resulting in a change in the bank rate.

“Banks have incorporated managing any impact of these decisions in their planning. Customers with variable, prime linked interest rate products loans and deposits will see a reduction on the rates applicable on their product,” said Makepe.

BancABC Country Marketing Manager, Stephanie Stoneham, says the reduction in interest rate will have an impact in reducing interest income in the short term. She added that it will also be corrected over time to some extent with the re-pricing of deposits.

“In an environment that offers business growth opportunities, an interest rate reduction will certainly assist companies to borrow at lower rates to take advantage of the growth opportunities,” said Stoneham.

On the other hand, she pointed out that if there are no growth opportunities for business, it is unlikely that business will borrow purely for the sake of borrowing as interest rates have come down.
“The bank will be reducing its prime rate by 0.5 percent from the prevailing 10 percent and we shall be making an announcement on this in due course,” said Stoneham.

Standard Chartered Bank Head of Corporate Affairs, Tumie Ramsden, says the current low economic activities as reflected in the GDP numbers and falling inflation is a signal for some kind of monetary stimulus. Reducing interest rates is one of the options that the authorities have.

“At Standard Chartered we have already implemented the instruction. It is a feasible instruction, as current interest levels and inflation direction provide for some reduction,” said Ramsden.

She pointed out that the bank derives revenues from multiple product offerings and while the interest reduction will feed through into their revenues.

“We do have strategies to offer better and more products to our customers and keep our revenues growing,” she said.


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