Wednesday, January 26, 2022

Economists not worried by upward rate crawl

Economists have opined that the recent revaluation of the Pula is too small to be noticeable and will have a minimal impact on the banking sector.

 

Government, through the Ministry of Finance and Development Planning recently recommended to maintain the Pula basket weights at 50 percent South African Rand and 50 percent SDR. Government also recommended a change rate crawl from zero to an upward crawl of 0.38 percent per annum effective 1st January, 2016.

Commenting on the latest development, Econsult Managing Director, Dr Keith Jefferis said the change entails a very small revaluation of the Pula against the basket over a period of one year. He added that after one year the Pula will be 0.38 percent stronger against all currencies than it would have been without the change.

 

“The impact on a day to day basis will be too small to be noticeable. There will be no significant impact on the banking sector,” he said.

 

Dr Jefferis stated that the exchange rates of the Pula against the Rand and USD will continue to be mainly driven by cross exchange rates, notably ZAR/USD. Government previously issued a statement indicating that there will be an annual review of the Pula basket of currencies aimed at keeping up with monetary policy developments in Botswana’s major trading partner countries, with a view of maintaining a stable and competitive real effective exchange rate of the Pula. The Pula basket comprises of the South African Rand and the IMF’s Special Drawing Rights (SDR) consisting of the US Dollar, Japanese Yen, the Euro and the British Pound.  Government stated that during 2015, the weights of the Pula basket were 50 percent South African Rand and 50 percent SDR, with the rate of crawl set at zero percent per annum.

For his part, Barclays Bank Botswana Economist Katso Tshipinare said a zero rate crawl was adopted for most of 2015 because Botswana’s inflation objective was around the same levels with that of its trading partners. He added that in essence, if inflation differentials were to be reversed such that the domestic inflation objective fell below expected inflation in trading partner countries, an upward rate of crawl could be introduced. Tshipinare said recent forecasts indicate that Botswana’s inflation objective is expected to remain below the forecast inflation of its trading partners, which he believes is the reason why government recommended the introduction of an upward rate of crawl.

“Bilaterally, this upward rate of crawl is a continuous daily revaluation on the Pula basket and is expected to reduce, though minimally the heavy appreciation of the dollar against the Pula, as well as give the Pula some little grounds against the Rand,” said Tshipinare.

He also agreed that the 0.38 percent rate crawl per annum is not significant enough to make any discernible movements on the daily bilateral exchange rate, more so that the main aim of this intervention is on the stability of the REER, which is expected to have appreciated by the same 0.38 percent after twelve months (end of 2016).

“In the end, Botswana’s exports sector is expected to remain competitive to the rest of the world,” Tshipinare stated.

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