Friday, March 31, 2023

Low inflation environment impetus for accommodative monetary policy

The domestic inflation that fell to new lows in December provides impetus to monetary policy easing, but one investment house has warned there are risks that could impact on the numbers.

Chief Investment Officer of Afena Capital Botswana, Alphonse Ndzinge suggested recovery of the South African Rand (ZAR), commodity price shocks and administered prices remain key risks ahead.

“Record low inflation cycle expected to continue with benign demand pressures, and lower oil and commodity prices,” he said.

The December 2014 headline inflation was at a record low of 3.8 percent with stable prices in the major component of the CPI basket including transport, food and non- alcoholic beverages. This low inflation environment has led to flat rate era as benchmark rate was has been flat at 7.5 percent.

“….almost no pressure to raise the policy rate in the short-term,” added Ndzinge.

“A steep fall in global commodity demand expectations in the past few months is the main factor driving the price declines. Supply cuts are urgently needed to rebalance markets, especially in oil,” he added.

However, the flat interest rate environment impacted on the bond market as the rally was halted by lack of activity in the rates. Ndzinge said the bond market raked in 6.1 percent in returns in 2014 as the ‘returns’ were mainly driven by coupon payments.

Last year was also subdued for local market as it made 9.5 percent returns and when factoring dividend in, the returns were 20 percent.


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