The cost of borrowing will likely remain unchanged for a foreseeable future as city analysts believe the Central Bank will have no reason to tighten Monetary Policy as the fundamentals are supportive of the current environment.
Although critics would say this is the time for Bank of Botswana to lower interest rates for companies to borrow and expand, the bank will be wary of household debt especially at this time of the year when consumers emptied their pockets during Christmas holidays.
The city is of the view the Bank Rate will be maintained at 7.5 percent even as the December inflation numbers fell to 3.8 percent, down 0.5 percentage point from November’s 4.3 percent.
“We forecast that inflation will remain within the Central Bank’s 3 ÔÇô 6 % objective range, with the likelihood of a further drop in inflation due to lower fuel and transport costs resulting from the drop in oil prices,” Stockbrokers Botswana analysts said.
“Bank of Botswana’s MPC will likely leave the bank rate on hold at 7.5% during the first quarter owing to benign demand pressures and inflation within the Central Bank’s objective range,” they added.
Inflation averaged at 4.4 percent in 2014, notably lower than 2013’s rate of 5.9 percent and the past year that was characterised by subdued food and fuel commodity price inflation, as can be seen in the numbers.
Food and non-alcoholic beverages inflation (with the largest weighting in the basket at 21.84 percent) was 3 percent for the year, while the transport category averaged at a benign 1.2 percent for 2014.
This forced government to pass the cost benefit to the consumer as retail fuel prices were adjusted downwards last November.
Investec Asset Management analyst, Tshephang Loeto said Bank of Botswana will keep the rates steady especially because of low oil prices that have kept inflation moderate.
“Looking ahead, we expect inflationary pressures to remain contained (locally and internationally), largely due to low oil and stable food commodity prices,” Loeto said.
Loeto also noted that since the petrol price decrease, the price of Brent crude oil has fallen by a further 32 percent and therefore they are not ruling out the possibility of further petrol price relief for consumers.
“Given this outlook, we foresee that CPI should stay within the Bank of Botswana’s target range for the foreseeable future and that there is no need for monetary tightening in the medium term.”