Monday, June 5, 2023

Investors cautiously optimistic BoB won’t hike interest rates

The investment community clapped their hands as April inflation softened to 7.9 percent but analysts ruled out the possibilities of the central bank tempering with interest rates.

“I don’t see Bank of Botswana taking any action. They will leave things as they are now,’ an analyst at Imara Capital, Mogorosi Badisang said Wednesday.

On Tuesday, Statistics Botswana said “headline inflation fell from 9.9 percent in March to 7.9 percent in April 2023”.

It further said that the decrease in inflation was largely due to the base effects that included the hike in Botswana Housing Corporation’s (BHC’s) rentals and the fuel pump prices effected last year between March and April.

“The fuel price increases of 12 thebe, 125 thebe 149 thebe and 174 thebe to petrol 93, diesel and illuminating paraffin respectively that took place towards the end of March 2022 have now fallen out of calculations,” an investment analyst at Kgori Capital, Kitso Mokhurutshe said.

Analysts had a mixed inflation outlook going forward. While Mokhurutshe was optimistic about inflation decelerating within the Bank of Botswana inflation target rate of 3- to- 6 percent, others warned about the dark clouds that are hovering over as a result of the weakening of the South African Rand against the  US dollar.

“Inflation is expected to experience another significant decline in May 2023 due to strong base effect.

“Without  any further fuel price adjustment in the near future, inflation is expected to dip within the Bank of Botswana’s 3-to-6 percent objective range as early as next month (May 2023) due to strong base effects but increase beyond it again in Q4 ( Fourth Quarter) 2023 as the base effect dissipate,” Mokhurutshe said.

However, the South African Rand was trading R19.36 cents to the US dollar which is influenced to the war between Russia and Ukraine.

“The weakening of the Rand will have knock-on effects to other countries such as Botswana that have strong trade links with South Africa. A weaker Rand will raise South Africa inflation thereby raising imported inflation to Botswana,” Garry Juma at Motswedi Securities said.

Trade between the two countries is largely skewed towards South Africa.

The Pula is 55 percent pegged to the Rand while the remaining 45 percent  is hedged against SDR , that includes the dollar, Euro and Yen.


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