Notes positive developments in the economy in a growth-enhancing environment
At a meeting held recently, the Monetary Policy Committee (MPC) of the Bank of Botswana decided to maintain the Bank Rate at 3.75 percent, The Gazette has established.
MPC comprises BoB senior staff and advisers and has responsibility for guiding monetary policy within the framework and objectives set out in the annual Monetary Policy Statement. This, among others, involves setting the policy rate (Bank Rate), but may also include reviewing other instruments of monetary policy.
The Bank Rate is the rate charged by the central bank for lending funds to commercial banks.
In a statement released by BoB, the MPC of Botswana’s central bank says it has noted positive developments in the domestic economy occur in a growth-enhancing environment.
“These include accommodative monetary conditions, improvements in water and electricity supply, reforms to further improve the business environment and government interventions against COVID-19, including the vaccination rollout programme,” says the statement.
In addition, successful implementation of the Economic Recovery and Transformation Plan (ERTP) should help anchor the growth of exports and preservation of a sufficient buffer of foreign exchange reserves, which amounted to P53.5 billion (10 months of import cover) at the end of November 2021.”
Overall, the MPC says it is projected that the economy will operate below full capacity in the short to medium term and should therefore not create any demand-driven inflationary pressures, going forward.
“The projected increase in inflation in the short term is primarily due to transitory supply-side factors that, except for second-round effects and entrenched expectations (for example, through price adjustments by businesses, contractors, property owners and wage negotiations), do not normally attract monetary policy response,” says the MPC.
“In this context, the MPC decided to continue with the accommodative monetary policy stance and maintain the Bank Rate at 3.75 percent,” it notes. “The Bank stands ready to respond appropriately as conditions dictate.”
The MPC notes that inflation rose from 8.4 percent in September to 8.8 percent in October 2021, remaining above the upper bound of the Bank’s medium-term objective range of 3 – 6 percent. “The latest increase in inflation mainly reflects the upward adjustment in domestic fuel prices in October 2021,” it says.
“However, inflation is projected to revert to within the objective range in the third quarter of 2022, mainly on account of the dissipating impact of the upward adjustment, during 2021, of value added tax (VAT) and administered prices from the inflation calculation, which altogether contributed 5.9 percentage points to the current level of headline inflation.”
Overall, says the MPC, risks to the inflation outlook are assessed to be skewed to the upside. “These risks include the potential increase in international commodity prices beyond current forecasts, persistence of supply and logistical constraints due to lags in production, possible maintenance of travel restrictions and other COVID-19 containment measures, domestic risk factors relating to regular annual price adjustments, as well as second-round effects of the recent increases in administered prices and inflation expectations that could lead to generalised higher price adjustments.”