The Bank of Botswana (BoB) has raised its policy rate to 3.5% but instructed commercial banks not to raise lending rates because the central bank is keen to strengthen liquidity management and preserve foreign reserves amid rising inflation and slowing economic growth
GAZETTE REPORTER
Following its meeting on 30 October 2025, the Bank of Botswana’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MoPR) by 160 basis points – from 1.9 percent to 3.5 percent.
But in an unusual move, commercial banks were directed not to raise their Prime Lending Rates (PLRs).
The Bank described the adjustment as “not monetary tightening” but rather a recalibration to strengthen liquidity support, maintain balanced market distribution, and safeguard foreign exchange reserves.
NEW LIQUIDITY MEASURES
It has also introduced new liquidity measures, including longer-term repo operations and extended maturity for central bank instruments.
“The structural drivers of the current liquidity pressures cannot be solved by monetary policy alone,” the MPC said, noting ongoing coordination with commercial banks to manage liquidity and ensure market stability.
This is coming at a time when Botswana’s economy contracted by about 1 percent in the 12 months to June 2025 amid weaker diamond exports and sluggish global growth.
RUNAWAY INFLATION
Inflation rose from 1.4 percent in August to 3.7 percent in September, driven by higher fuel prices. BoB expects inflation to average 2.7 percent this year and 5.9 percent in 2026.
The MPC said the policy stance remains broadly accommodative to support recovery.
However, some analysts have cautioned that the directive to hold lending rates steady could limit the transmission of monetary policy to consumers and businesses.