Saturday, July 2, 2022

Market doubts inflation will fall within BoB target band

After the December CPI figures edged up slightly, there have been fresh concerns in the market that inflation will take time to fall within the target objective set by Bank of Botswana.

The Central Bank has set itself a target band of 3-6 percent, but analysts had forecast that inflation elude the Central Bank planners.

Asset manager Investec predicted that inflation would for the first few months of the year will remain above the BoB objective range with CPI for January expected to be 7.6 percent.

“Inflation will continue to be driven by rising commodity prices (food and fuel prices), strong domestic demand as well as the continued stronger rand, as about 80 percent of our imports are from South Africa,” said Carol-Jean Harward, an Investment Analyst at Investec Asset Management, which manages a sizeable BPOPF funds.

The top five asset manager in Botswana was spot on as it forecast that inflation was to end the year higher at 7.4 percent on the back of higher global commodities prices, a weaker Pula, albeit small, the effects of the 10 percent increase in alcohol levy.

Its new forecast is that the Consumer Price Index (CPI) will rise from 7.4 percent in December to for January 7.6 percent, but sees interest rates remaining unchanged for most part of the new year.
The consumer inflation went up slightly between November and December by 0.2 percent in line with market expectations.

Statistics Botswana data showed on Friday that the Alcoholic Beverages, Tobacco & Narcotics group index registered an increase of 1.0 percent from 180.4 to 182.1 between the two months.

It said the movement was attributed to a rise in the constituent section index of Alcoholic Beverages (1.0 percent) and Tobacco (0.5 percent). On the other hand, the rise in the Alcoholic Beverages section index was largely due to a 10 percent increase in alcohol levy, which effected on the 1st December 2010.

Most of the indices were stable with the furnishing, household equipment & routine maintenance group index registered an increase of 0.9 percent from 140.4 in November to 141.7 in December.
This was attributed to a rise in the constituent section index of goods & services for household maintenance (1.9 percent), and Household Textiles (1.1 percent).

The housing, water, electricity, gas & other fuels group index moved from 128.1 in November to 128.8 in December, recording an increase of 0.5 percent and it was attributed to a rise in the constituent section index of rent paid by tenants (1.0 percent), which follows the quarterly survey on private rentals.

Capital Securities analyst, Aobakwe Mokgethi said inflation should remain above the Bank of Botswana’s target range of between 3 and 6 percent.

“Brent crude prices have been on a steady increase and this could have a huge impact on inflation going forward taking into account that government continues to release fuel from its strategic reserves to petrol retailers,” said Mokgethi.

Investec added that commodity prices are expected to continue trending upwards in 2011, driven predominantly by the expected positive growth momentum of the global economy and the demand for commodities to hedge against the possibility of rising global inflation.

“All these factors are expected to continue fuelling commodity prices and therefore increase inflation, especially for those countries (like Botswana) with a higher weighting for food and fuel in their baskets,” Investec said.

“We believe that the inflation threat combined with strong credit growth, as well as the Bank of Botswana’s wish to maintain consistency of monetary policy, would likely see the MPC holding rates steady for most of 2011.”

BoB is confident that the potential benefits of a rate cut stimulus outweighs the inflationary risks, given the below-trend output on the non-mining sector, uncertain global expectations as well as their buoyant view on inflation.

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