First National Bank Botswana (FNBB) Chief Economist – Moatlhodi Sebabole has predicted that the central bank – Bank of Botswana will make one last cut to its benchmark rate before the end of the year.
The central bank’s Monetary Policy Committee (MPC) which is tasked with determining the Interest Rate amongst other things is scheduled to meet on 08 October and 03 December 2020, respectively. The two last sittings of 2020 are part of a series of pre-scheduled meetings where monetary policy stance is determined.
At its last meeting, held on 20 August 2020, the MPC decided to maintain the Bank Rate at 4.25 percent. The rate was first reached in April 2020 and marked a historic record low in Botswana’s modern banking history.
“The MPC, however, recognised that the short-term adverse developments in the domestic economy occur against a potentially supportive environment including accommodative monetary conditions”, said Central bank governor Moses Pelaelo in August 2020 during a virtual press conference with journalists following the fourth MPC meeting.
When fielding questions relating to the economy at the FNBB full year results on Wednesday, Sebabole said that he expects the MPC to make another cut on the Interest Rate.
“Interest Rate could move lower to 3.75 percent before the end of the year”, said Sebabole.
Sebabole’s prediction is in line with the central bank’s 2020 monetary policy stance which is implemented in the context of prospects for low inflation in the medium term, associated with subdued domestic demand resulting from the adverse effects of the COVID-19 disease containment measures.
FNBB, where Sebabole works, anticipates that that the disruptions to business and consumer activity associated with COVID-19 pandemic will result in an economic contraction of 10.5 percent in 2020.
The tech advanced bank says the impact on the global economy has already reduced the demand for Botswana diamonds, leading to a moderation of both diamond prices and local production.
“This trend is expected to persist until the virus is sufficiently contained to allow real economic recovery”, said Sebabole on Wednesday.
On the other hand, consumer inflation in Botswana – which has been core to MPC’s interest rate decisions has remained stubbornly low, sparking debate over the effectiveness of the central bank’s accommodative policy in stimulating domestic demand and jumpstarting the economy.
FNBB says it expect inflation to average 1.9 percent in 2020 further supported by low Brent Crude oil prices.