If you ask Botswana central bankers if raising Monetary Policy Rate (MoPR) to cool demand as a means of reining on inflation is an antidote, their answer would be a resounding YES. Despite that response, prices in Botswana, mainly driven by supply chain shocks, keep rising notwithstanding the central banker’s stance on MoPR. Given all these, the question that comes to many heads then becomes: Are the Monetary Policy tools the right antidote at this juncture or perhaps our central bank has made a totally wrong prescription?
On Thursday the Bank of Botswana (BoB) raised the MoPR by 50 basis points from 2.15 to 2.65 percent. The hike was the third since the beginning of the year having been raised first in April, June and by half of a percent on 25 August. While this is a norm amongst central bankers across the globe, the Botswana scenario seems to be a little different. The nation is certainly experiencing the opposite of the intended results. Our central bank maintains that hiking interest rates will put demand more on an even keel with constricted supply despite the now obvious failure to bring down headline inflation as shown by Consumer Price Index of Statistics Botswana. The latest CPI figures shows that the country’s annual inflation quickened to the highest level in July, driven by price rises for fuel, food, fuel and miscellaneous services. The increases in prices were mainly reflected through transport which rose by 9.2 percent due to rise in retail pump prices of fuel approved by the Botswana Energy Regulatory Authority (BERA) in late June 2022. Other indexes that registered a significant increase are Food & Non-Alcoholic Beverages (1.7 percent), Housing, Water, Electricity, Gas & Other Fuels (1.2 percent) and Miscellaneous Goods & Services (0.9 percent). On overall, annual inflation rate for the month of July was 14.3 percent as opposed to 12.7 percent in June 2022, registering a rise of 1.6 percentage points. But even when it’s clear that inflation numbers keep running away from the central bank’s object 3-6 percent range, executives at BoB maintain that, “inflation is not out of control”. Is this true? Or perhaps the central bankers live in a different country. With global supply shocks rearing their ugly heads from time to time, it appears that it would be hard for our central bank to maintain a sustained grip over inflation. Infact the bank’s head of research Dr Lesedi Senatla admitted this week that inflation is a moving target and as such will not be brought down as quickly as some wish, a sentiment shared by his superior, the bank governor Moses Pelaelo.
“There is a significant risk that inflation could remain elevated due to factors that include: the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints to production; the 2 economic and price effects of the ongoing Russia-Ukraine war, the uncertain COVID19 profile and the escalating tension between China and Taiwan”, Pelaelo told journalists at the MPC brief on Thursday.
With the supply-side effects having proved to be both large and far more persistent, the MPC have since reviewed inflation forecast setting it to return to the bank’s 3 – 6 percent objective range in the third quarter of 2024 not by 2023 as previously pronounced at the June briefing. Could this be an admission that so far the medicine prescribed is not working or it is a case of “not yet”? Whatever the case it might be, the continuous hike of MoPR seems to be reversing the little gains made post Covid 19 pandemic. With reduced disposable income, high cost of living and possible further increase in interest rates, the monetary policy adjustments effected by the central bank have so far not worked in favour of consumers hence the question: are these measures – both fiscal and monetary an antidote or simply a wrong prescription to our runaway inflation?
From where I stand which is on the streets of our capital, it appears that our monetary and fiscal policies, as implemented by the central bank and the Finance ministry respectively have so far not been an effective anti-inflation antidote. It appears our medication lies in solving our economic structure more especially ownership and control of it. Across the globe Governments have an important role to play in fighting inflation. Ours has more work to do as it has to start with handing back the economy to Batswana who have some form of attachment to it. In the meantime, state organs like Competition and Consumer Authority should actively and truthfully monitor supply chains to counter price fixing and gouging. The #Bottomline is that even if the Ukraine war was to pass, there will always be another major economic and geo-political upset hence the need to always strive for self-sufficiency with total or near total control of the economy by Batswana.
