The year 2015 has so far seen inflation rates flirt with the low bound of the Bank of Botswana’s (BoB) 3-6% objective. Despite increases in water and power costs, significantly low oil prices have subdued any major price movements across the economy.
Global oil prices have sank for some time with Brent crude spending most of the last six months below US$65 per barrel on oversupply concerns.
Stock brokers Motswedi Securities anticipates inflation to end the year at around 4%. According to the firm’s weekly assessment bulletin, “although inflation vaguely declined during the month under review, our view is that it will pick up in the coming months and close the year at levels around 4% mainly on base effects.”
The firm states that sluggish economic growth in Botswana’s largest trading partner, South Africa and inflationary pressure will contribute to a rise in the country.
“Upward pressure could also unfold on the back of cost push inflationary pressures from South Africa after recent mining and manufacturing data pointed to a sluggish growth leading to a weaker rand which breached its 13 year low early this month.”
Motswedi Securities state that they expect the increasing inflationary pressures which saw an increase in prospects of rise in interest rate to be exported to Botswana. They however underline that a stronger Pula will help absorb any major price rise as the local currency continues to gain against the Rand.
The firm said that the BoB was most likely to leave the 6.5% interest rate unchanged for the rest of the year due to relatively low fuel and food prices while domestic demand remains subdued. “However, we cannot completely eliminate the probability of another small bank rate cut by BoB before the end of this year should the country’s GDP growth soften and credit growth to the business sector doesn’t grow in line with expectation,” Motswedi Securities said.