Bank of Botswana cut its benchmark interest rate by a quarter-percentage point on Thursday, in line with most forecasts, resuming policy easing after economic growth and inflation slowed.
The central Bank says the current state of the economy and the outlook for both domestic and external economic activity provides scope for easing monetary policy to support economic activity.
Policy makers across globe continue to take stronger steps to counter global economic risks. Already more than 30 central banks around the globe have cut interest rates this year as countries move to shore up their economies amid rising concerns over global growth and trade conflicts.
Central banks often resort to lower interest rates in environments in like in order to boost money supply in the economy, stoke demand and provide an impetus to growth.
In Botswana, Central Bank Governor Moses Pelaelo told reporters in the capital Gaborone after the Thursday decision that the Bank’s Monetary Policy Committee (MPC) decided to reduce the Bank Rate by 25 basis points to 4.75 percent.
“However, with inflation low and stable and inflation expectations well anchored, improving total factor productivity remains key in promoting sustainable and inclusive economic growth”, Pelaelo said.
The BOB rate cut comes hardly a few weeks after a UK based firm – Fitch Ratings, has forecasted that Bank of Botswana (BoB) will cut its benchmark interest rate by end of this year to stimulate economic growth.
At the time of the prediction, Fitch Solutions said it expects Botswana’s central bank to cut the bank rate from 5 percent to 4.5 percent this year, and maintain the rate until 2020. The basis of the forecast was on the backdrop of slower economic growth, and muted credit growth that has struggled to rebound from a steady decline between May 2012 and September 2017.
Official figures show that in March 2019, credit growth was at 6.5 percent compared to the 2011 average of 13.2 percent. The slow credit growth pace has since hindered growth of private consumption and investment.
“We believe the relatively muted macroeconomic backdrop will provide impetus for an interest rate cut in the half year,” noted Fitch in its assessment report.
On Thursday, Pelaelo said in overall, the domestic economy is projected to operate close to, but below full capacity in the short to medium term, thus posing no upside risk to the inflation outlook.
Botswana’s GDP is projected to increase by 4.2 percent and 4.8 percent in 2019 and 2020, respectively.
Pelaelo said that the significant influences on domestic economic performance include conducive financing conditions as indicated by accommodative monetary policy and sound financial environment that facilitate policy transmission, intermediation and risk mitigation.
“Moreover, it is anticipated that the increase in government spending, as well as implementation of initiatives, such as the doing business reforms, should also be supportive of economic activity”, the governor told journalists.