- BoB sees limited growth, contained inflation
GAZETTE REPORTER
The Bank of Botswana’s Monetary Policy Committee (MPC) has cited a weakened economy and low inflation that are expected to persist in the medium term to hold the Monetary Policy Rate (MoPR) steady at 1.9 percent recently.
“Prospects for significant economic growth remain limited,” the MPC announced in a recent statement. “The economy will continue to operate below full capacity in the short term.”
The statement added that as a result, the MPC does not foresee inflationary pressures from domestic demand, projecting inflation to stay well within the 3 – 6 percent target range over the coming years.
Economic contraction
Since the MPC’s last meeting in August, Botswana’s economy has seen continued contraction. Data released by Statistics Botswana highlights challenges across several sectors, including a weakened non-mining sector and reduced external demand for diamonds.
“This has led to reduced export earnings, which is constraining government spending and its impact on economic activity,” the central bank said.
Botswana’s real GDP shrank by 0.5 percent in the second quarter of 2024, a reversal from the 3.3 percent growth in the same quarter last year.
The outlook remains cautious: the International Monetary Fund has revised its 2024 growth projection for Botswana to 1 percent, down from 2.7 percent in 2023, partly due to the slowdown in the diamond sector.
Global growth is also forecast to decline, with the IMF estimating a global GDP growth rate of 3.2 percent in both 2024 and 2025.
Subdued inflation
Inflation dropped to 1.5 percent in September, falling below the central bank’s 3 – 6 percent target range. The Bank of Botswana attributes this decline to “the diminishing impact of the increase in domestic fuel prices in the corresponding period in 2023” and a recent reduction in fuel prices.
Looking ahead, the MPC expects inflation to remain low, averaging 2.8 percent in 2024 and 3.1 percent in 2025, with an eventual rise to 5.3 percent in 2026.
Risks to the inflation forecast are “skewed to the downside,” the central bank said, due to weak domestic and global economic activity, limited fiscal room, and potential declines in international commodity prices.
However, the MPC warned that inflationary pressures could emerge if “international commodity prices were to increase above current forecasts” or if supply chain constraints worsen.
Decision to hold steady
In light of these economic conditions, the BoB concluded that “holding the policy rate steady at 1.9 percent is appropriate”. With inflation expected to stay low and the economy operating below full capacity, demand-driven inflation is unlikely to materialise in the near term.
The central bank also noted that “businesses expect inflation to be within the medium-term objective range”, suggesting that inflation expectations are well-anchored despite the recent fluctuations.
In its assessment, the MPC reiterated that while inflation may fluctuate slightly in the coming years, significant inflationary risks appear contained.