28 Feb 2013

A monetary policy statement produced by Bank of Botswana indicates that average domestic inflation will remain above the medium-term objective range of 3-6 per cent in 2013.

The report presented by the bank’s governor, Ms Linah Mohohlo, showed that domestic food inflation would rise above 8 per cent in the second half of 2013, up from 7.5 per cent at the end of 2012. Fuel inflation would remain above the 10 per cent mark, but was projected to decline to around 5 per cent towards end of the year.

Ms Mohohlo stated that Bank of Botswana’s objective for the medium-term period, which was from September 2012 to December 2014, was for domestic inflation fall between 3-6 per cent.

She said taking account of the projected below-trend economic activities and modest growth in disposable incomes, it was expected that domestic demand pressures would be low in 2013.

She added that the impact of benign foreign price developments on domestic inflation would also be low. Though the governor said their forecasts indicated that figures for inflation would fall within the projected 3-6 per cent range, she cautioned that there were risks that might lead it to rising again.

“Any substantial upward adjustment in administered prices and government levies and any increase in international food and oil prices beyond current projections present upside risks to the inflation outlook. There are also downside risks arising from the weaker global economic activity that could lead to lower inflation than currently projected,” Ms Mohohlo said.

She said the output expansion for the domestic economy would be moderate.

“Output expansion is forecast to be moderate at 5.9 per cent for 2013, from 6.1 per cent in 2012, with a negative non-mining output gap and restrained activity in the context of anticipated modest local demand due to sluggish growth in personal incomes,” she stated.

She said construction activity was expected to ease following robust growth in the past few years. She further observed that an increase in government development expenditure would provide some stimulus to the economy.

The governor said activities relating to the transfer of diamond aggregation to Botswana and downstream processing would be positive for growth across several sectors of the economy.

Ms Mohohlo also stated that the mining output will be determined by new ventures as existing producers are likely to maintain or reduce their production levels in line with foreign demand.

Overall, she said results of a Business Expectations Survey conducted by Bank of Botswana in September 2012 showed perceptions of improvement in economic prospects in 2013, with exporters more optimistic than domestic oriented firms. ENDS