Thursday, July 18, 2024

Pula depreciated against Rand in June 

The local currency, the pula depreciated by 2.9 percent against the South African rand and appreciated by 2.2 percent against the IMF Special Drawing Rights (SDR) over the one month to June 2023. 

Official figures shared by the central bank shows that local unit appreciated by 6 percent against the Japanese yen, 4.5 percent against the Chinese renminbi, 2.3 percent against the US dollar, 0.7 percent against the euro, and 0.5 percent against the British pound.

Bank of Botswana says over the twelve months to June 2023, the nominal Pula exchange rate appreciated by 5.9 percent against the South African rand and depreciated by 8.3 percent against the SDR. Against the SDR constituent currencies, the Pula depreciated by 11.7 percent against both the British pound and the euro, 8.4 percent against the US dollar, 2.8 percent against the Japanese yen, and 0.6 percent against the Chinese renminbi.

With domestic inflation expected to be on average 1.51 percent higher than in the trading partner countries in 2023, the ministry of finance and the central bank late last year opted for a 1.51 percent annual downward crawl for the Pula. 

It is anticipated that the crawl rate will be implemented through small daily adjustments that would equal 1.51 percent over twelve months. The government economists also concluded that the trade patterns remain largely unchanged and, therefore, maintained the weight at 55 percent SDR and 45 percent South African rand. 

The exchange rate of a currency is how much one currency can be bought for each unit of another currency or, put differently, the rate at which domestic currency can be converted into a foreign currency or vice versa. Botswana adopted and has to date been implementing a crawling peg exchange rate policy framework since 2005. Under the framework, the Pula is fixed to a basket of foreign currencies, namely the Special Drawing Rights (SDR) and the South African rand. The SDR comprises the US dollar, British pound, euro, Japanese yen, and Chinese renminbi. 

The latest data will come as bad news for firms in the Mining and Quarrying, Manufacturing, Construction as well as Real Estate sectors who have in the past viewed the Pula/Rand exchange rate as unfavorable. 

In a survey carried out by the central bank in the last quarter of 2022, most firms in these sectors shared that it has been costly to do business in Botswana as the Pula was not strong enough against the South African rand.

The central bank suggested in the survey that the sentiment might be justified by the fact that, “…..these firms source most of their raw materials from South Africa”. 

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