Regional Head of Economics-Africa at Standard Chartered, Razia Khan says the ongoing drought and its impact on food price inflation will be a key consideration for most monetary policy authorities across southern Africa.
Responding to a questionnaire from The Telegraph, Khan said while the crawl will give Botswana relative currency stability when compared to regional partners, it is not yet known if this will be a sufficient buffer against much higher food price inflation in Southern Africa as a whole. The Bank of Botswana (BoB) recently stated in its monetary policy that inflation is anticipated to remain within the medium term target of 3-6percent. The BoB’s monetary policy statement further stated that Botswana domestic economy is forecast to grow by 4.2 percent in 2016, which is an improvement on last year’s 1percent expansion.
Asked to comment on the projections of the monetary policy statement, Khan said it is still too early to assess performance relative to the official expectation.
“It’s only February,” she said.
However, 2016 started with some market volatility and a still-bearish outlook for commodity prices, amid reports that the mining industry is planning even more job cuts.
“Clearly, until the global economic outlook improves, there are downside risks to growth,” said Khan.
The Reserve Bank also admitted that there are risks of food price inflation if the drought conditions persist. Conversely, downside risks to inflation may arise from restrained global growth and possible further decline in commodity prices. According to Khan, Southern Africa is especially at risk of escalating food prices.
“Weak demand for credit from businesses in an ongoing concern and a potential source of downside risk to official growth forecasts,” she stated.
China remains key to the outlook for commodity prices and global growth prospects, and the world’s attention is currently focused on China. The exchange rate policy will also continue to support domestic industries in achieving international competitiveness and contributing to economic diversification. However, factors other than the foreign exchange (FX) rate play a great role in determining competitiveness.
“These may include the ease of doing business, the state of infrastructure such as internet bandwidth for services-focused economies, the ease of obtaining work permits as well as labor productivity,” said Khan.