Botswana’s inflation rate is set to surge above the central bank’s targeted range but the bank stressed that the lending rate is expected to remain steady, an analyst said last week.
Maungo Lebana, an Investec analyst based in South Africa, said increasing food prices and general goods price spike put their “outlook troubled” as it indicates that the inflation will be outside the target range by at least one percent.
In addition, tradable goods inflation is likely to remain high because of rising goods prices, primarily from South Africa.
Given the pressures emanating from imported inflation, combined with the recent increase in local fuel prices and rising concern over food prices, our inflation outlook remains troubled. We therefore expect a further acceleration in headline inflation into the second quarter of 2008. Our forecast is that headline inflation will peak at 8 percent by February 2008, and later descend into the 4-7 percent target band by the end of the second quarter,” he said.
His comments follow the central statistics office report last month which indicated that consumer price index pushed up by 50 basis point jump from 6.8 percent in September to 7.3 percent in October.
Bank of Botswana has a target range of four-to- seven percent inflation target that was announced in February this year. The range is unlikely to change in the coming year, if the crude oil prices are not to upset the apple-cart.
Investec’s outlook is in line with the mood within the business sector which is not anticipating any move in interest rates in the foreseeable future.
“Although significant risks to the inflation outlook remain, we still expect interest rates to remain on hold into the first half of 2008,” Lebana said.
According to figures released by the Central Statistics Office (CSO), the consumer price index edged from 6.8 percent to 7.3 percent in October at the back of food price spike and vehicle prices. Food annual price hike was recorded at 12.9 percent against 12.5 in the previous month while transport’s annual rate accelerated from 4.9 percent to 7.7 percent.
“We hold a long term view that inflation will stabilize around the bank of Botswana target range. That is around seven percent and at the most eight percent,” the chief executive officer of Stockbrokers Botswana, Geoffrey Bakwena, said on Friday.
However, the markets were wary of the dark cloud of a possible fuel price increase which is likely to produce second round effects in the general economy. Fuel prices in the international markets hovered around US $ 100 per barrelÔÇöthe figure that was last seen in the 1970s.
Further, on the local front, there were also concerns of a possible hike in administrative prices and most possible from the country’s biggest land lord being the Botswana Housing Corporation in the coming year.
“There are a number of factors that might trigger inflation to go up. That is if government decides to increase fuel prices significantly and BHC decides to increase rentals,” he added.
Government is hedging against fuel price hike by the petroleum fund but if the fund is depleted the Department of Energy Affairs can increase prices without any notice.
“We hold the view that inflation will remain at the current levels of seven-to seven and half percent in then long term. In the short term it might go up,” Hloni Matsela of KBL said Friday.
However, he stated that factors such as drought and crude oil prices which are spiraling out of control might put upwards pressure on inflation rate. “Now crude oil prices are at US $ 95 per barrel as against US $ 55 per barrel last year around this time,” he observed red.
“We are still in the park but if it goes out of the range we will have to twick some other things,” he added.
As part of instilling confidence in the economic management of the country, the Bank of Botswana has set itself an inflation target range of four-to seven percent. And it is unlikely to change the range in the coming year despite the fact that government might embark on an expensive exercise of civil service salary hike ahead of the 2009 general election.
Although significant risks to the inflation outlook remain, we still expect interest rates to remain on hold into the first half of 2008.