Wednesday, September 23, 2020

Conditions favourable for monetary policy easing ÔÇö Stanchart, Investec

Top brains in the country’s financial services industry said Friday fundamentals are favourable for Bank of Botswana (BOB) to stimulate the economy by lowering the cost of borrowing.

Standard Chartered Bank and Investec market experts said at this time when the world is reeling from the ramifications of global recession, the Central Bank cannot risk the economy by not moving the interest rates downwards.

“Gone are the times when Bank of Botswana used to argue that when you reduce interest rates Batswana will get indebted. They are now looking at the other side,” said Bakang Seretse, Investec Asset Management Botswana’s Fund Manager.

“We think interest rates will come down on the back of lower inflation due to the abating food and fuel prices,” he told Sunday Standard.

In a market commentary released on Friday, Standard Chartered Bank said the previous view that Botswana was not spared from global crisis was misplaced.

“In an effort to kick-start the stalling economy, we expect Bank of Botswana to cut the bank rate by 1 percent at the next Monetary Policy Decision meeting. This will provide instant relief to struggling consumers and businesses,” advised Standard Chartered Bank.

“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,” it added.

Both the bank and the asset manager attributed their outlooks to the falling food and fuel indexes that weigh heavily on the Consumer Price Index (CPI).

Standard Chartered noted that the decline in the January inflation number from 13.7 percent in November to 12.8 percent presents an opportunity for an aggressive cut in the bank rate.

It said although the January reading is 6.8 percent above the upper end of the 4-6 percent target band, it is interesting to note that much of the impact emanates from the 30 percent alcohol levy that was introduced back in November.

“After isolating the impact of the 30 percent alcohol levy, the inflation reading would be 8.7 percent as opposed to 12.8 percent, suggesting that inflation is well under control and closer to the target band than the headline figure suggests. We expect the BoB to be looking at this lower number in its policy decision since a levy results in a transitory spike in inflation that washes out after 12 months.”

Seretse says they expect a 2-3 percent cut in the interest rates in the course of the year as he sees no reason for rates not to touch the lows of 11 percent experienced in 1999.

The bank, on the other hand, believes there is evidence of predatory pricing evidenced by much higher local food inflation in comparison with food inflation in South Africa from where Botswana imports a majority of its food taking into a stronger Pula against the Rand and lower fuel costs.

It added that now that some local retailers have announced a cut in food prices here and in South Africa, it expects other retailers to follow suit further easing pressure on food inflation.

“With this in mind we remain optimistic about the inflation outlook throughout 2009 and expect inflation to fall within the 4-6 percent target band by the end of the year creating further room for more rate cuts in 2009,” the bank said.

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The Telegraph September 23

Digital edition of The Telegraph, September 23, 2020.