The Bank of Botswana’s inflation expectations for the second half of 2013 appear to remain anchored around the 3-6 percent of the inflation target range. This was revealed in the midterm review released on Wednesday.
Based on its economic assumptions, BoB foresees a below trend economic growth in the medium term, as influenced by slowing global economic expansion and low growth in government spending and incomes.
It is anticipated that external price pressures on domestic inflation will be benign given the projected moderate expansion in world economic activity, stable commodity prices and the dampening impact of the partial capacity utilisation and high rates of unemployment in major economies.
Zeroing in on the domestic economy, slow increase in incomes and below-trend performance of the economy are anticipated to moderate demand pressures on inflation.
Nonetheless, BoB foresees risks to the inflation outlook stemming from any possible large adjustment to administered prices and government levies, as well as any increase in international food and oil prices beyond current forecasts.
It is projected that domestic output will remain below trend, but with modest overall growth derived from the performance of the non-mining sectors. Another factor that is likely to restrain the impact of any regional pressures on inflation is the relative strength of the Pula against the South African Rand.
In the first half of 2013 inflation trended downwards although it was above the objective range of 3 ÔÇô 6 percent for much of the period. From June inflation fell to 5.8 percent, decelerating again in July hitting 5.7 percent.
According to BoB, the fall in inflation was influenced by base effects associated with the increase in administered prices in the first half of 2012, as well as the moderation in the annual change in cost of some categories of goods and services in the first half of 2013. Meanwhile, domestic demand and external inflationary pressures remained low.
On account of the positive medium-term outlook for price developments, the Bank Rate was cut by a cumulative 100 basis points in the first half of 2013 to 8.5 percent from 9.5 percent to support economic growth.
With the prevailing current state of the economy and the projected performance, together with the positive inflation outlook, BoB will uphold the existing monetary policy stance as it is consistent with the attainment of the 3 ÔÇô 6 percent inflation objective in the medium term.
Due to the projected stable and modest inflation differential between Botswana and her trading partner countries, BoB has decided to maintain the 0.16 percent downward crawl.
Botswana’s trading partner countries, average inflation moderated from 4 percent in December 2012 to 3.8 percent in June 2013. Headline inflation in South Africa fell slightly from 5.7 percent in December 2012 to 5.5 percent in June 2013, thus remaining within the South African Reserve Bank’s target of 3 ÔÇô 6 percent.
