Wednesday, January 19, 2022

Lower oil price having positive impact on Botswana inflation ÔÇô Investec

Crude oil prices have fallen in the recent times and a local asset management company said in a commentary that the move will have a positive impact on Botswana inflation going forward.

Statistics Botswana recent CPI data showed that in October, headline inflation fell from 4.5 percent as at September, to 4.3 percent mainly driven by declines in major drivers of the basket including housing water, electricity, gas and other fuels that went down from 3.4 to 3.3 percent.

Investec Asset Management Botswana, which manages assets of close to P10 billion on behalf of clients, said the commodity-related trend is set to continue for the foreseeable future.

“If the oil price stays stable at these levels, or even if it should rise by $10/barrel from the current levels, it will have a significantly positive effect on inflation. It would also allow the Petroleum Fund to build more reserves in order to keep the retail fuel pump prices constant,” Tshephang Loeto, an analyst at Investec said.

Investec is of the view that the lower commodity oil and food commodity prices were clearly responsible for the drop in inflation.

Oil price realised a US$30 drop per barrel over the last three months while the prices in the transport category ÔÇô with the second biggest weighting in the basket ÔÇô were unchanged from September and only 1.6 percent higher than a year ago.

The lower crude oil price meant stable pump prices at a time when consumers are squeezed on the eve of Christmas holiday that is normally characterised by high expenditure.

“The lower oil price has benefited consumers through a stable petrol price. The last time the government had to raise the retail prices of petrol, paraffin and illuminating paraffin was in 2012,” said Loeto, praising the establishment of state owned company as it will stablise oil prices.

“The establishment of the Botswana Oil Company is another factor that will affect oil supply favourably ÔÇô the company has the responsibility to manage state-owned fuel reserves and ensure the smooth running of the petroleum sector. This will significantly aid the stabilisation of oil prices in future,” he added.

The state underpinned petroleum company was launched last month with President Ian Khama saying the move was meant secure the supply of oil products as a means of security. “To this end, government saw it fit that rather than relying solely on multinational oil companies, we partake in the supply of these very critical products to assure security of supply,” he said when launching the company that could in future become a public trading company.

Investec also said the Central Bank’s Monetary Policy Committee (MPC) could leave the cost of borrowing steady with the current market environment.

Bank of Botswana (BoB) has kept the Bank Rate, which is the benchmark rate for commercial banks, unchanged for a long time as it argued current state of the economy, domestic and external economic prospects as well as the inflation outlook suggest that the current monetary policy stance is consistent with maintaining inflation within objective in the medium term.

“Given these conditions, we believe CPI will stay within the Bank of Botswana’s target range of 3% – 6% and we foresee that interest rates will stay on hold for the medium term,” said Loeto.
The Bank Rate is currently set at 7.5 percent.

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