- Reduces Monetary Policy Rate by 25 basis points to 2.15 percent
- MoF projects growth to accelerate to 4.2% in 2024 and 5.4% in 2025
- BoB warns increase int’l commodity prices could impact inflation
GAZETTE REPORTER
The Monetary Policy Committee (MPC) of the Bank of Botswana (BoB) has announced a reduction in the Monetary Policy Rate (MoPR) by 25 basis points, bringing it down from 2.4 percent to 2.15 percent.
This move is aimed at supporting economic activity and was disclosed in a recent statement by the BoB, which also addressed the nation’s inflation trajectory and economic performance.
According to the MPC, headline inflation stood at 3.1 percent in April 2024 and is expected to remain within the central bank’s 3 – 6 percent objective range in the medium term.
Geo-economic fragmentation
“The risks to this inflation trajectory were assessed to be balanced,” the committee stated.
“The MPC observes that inflation could be higher than projected if international commodity prices increase beyond current forecasts, supply and logistical constraints persist, and geo-economic fragmentation escalates.”
The MPC also highlighted potential domestic factors that could push inflation higher, such as possible upward adjustments in government-controlled prices and increases in domestic food prices due to ongoing El Niño-induced drought conditions in Southern Africa.
GDP up
However, these risks are countered by the possibility of weaker domestic and global economic activity and any decreases in international commodity prices.
BoB’s statement also reviewed the country’s recent economic performance. “As reported in April, real gross domestic product (GDP) grew by 2.7 percent in 2023, compared to 5.5 percent in 2022,” it noted.
“The slowdown was attributable to subdued performance across most sectors of the economy, including the mining sector.
Global output
“Meanwhile, economic activity remained restrained in the first half of 2024 due to unfavourable global economic conditions and geopolitical events, as well as domestic structural constraints.
“According to the April 2024 World Economic Outlook, global output growth is forecast at 3.2 percent for both 2024 and 2025, the same as in 2023.”
For Botswana, the Ministry of Finance projects growth to accelerate to 4.2 percent in 2024 and 5.4 percent in 2025. The MPC highlighted several factors expected to drive this growth, including economic transformation reforms and supportive macroeconomic policies underpinned by a shift in mindset.
ERTP
Among these are the stimulus budget announced on 5 February 2024 by finance minister Peggy Serame, supportive monetary and fiscal policies, improvements in water and electricity supply, implementation of the Economic Reform and Transformation Plan and the Transitional National Development Plan, infrastructure projects, as well as various new and amended legislation.
The MPC noted that the economy is anticipated to operate below full capacity in the short-term, thus not generating demand-driven inflationary pressures.
“Furthermore, inflation is forecast to remain low but within the objective range in the medium term, averaging 3.6 percent in 2024 and 4.5 percent in 2025,” said the statement.
“Similarly, businesses also expect inflation to be within the medium-term objective range; thus, inflation expectations are aligned to the inflation objective (well anchored).
Risks and opportunities
“Therefore, the current state of the economy and the outlook for both domestic and external economic activity provide scope to ease monetary policy. Accordingly, the MPC decided to decrease MoPR by 25 basis points to 2.15 percent.”
This decision reflects a careful balance of risks and opportunities, aiming to bolster economic activity while keeping inflation in check.
As the country navigates through global uncertainties and domestic challenges, BoB’s proactive stance on monetary policy signals a commitment to fostering stable economic growth and maintaining price stability.