27 Aug 2014

Household credit, although remaining high, is said to be stable but Bank of Botswana says its impact on the financial sector will continue to be monitored. 


The national inflation rate has been within Bank of Botswana’s objective range of 3-6 per cent during the first six months of this year and the bank rate has been maintained at 7.5 per cent. 


Bank of Botswana’s Midterm Review show that credit growth decelerated due to a lower annual increase by households, thus easing concerns about the rate of growth in household debt. 
The Bank notes a change in household lending as credit expansion has recently been driven by secured lending, mainly in real estate (residential property). 


“In contrast, the annual growth in lending to the business sector increased from 4.6 per cent at the end of 2013 to 8.7 per cent in June 2014,” Bank of Botswana states. 
However, the Bank notes that household credit growth remains high and continues to be monitored for its potential impact on demand, financial stability and consumer welfare. 


The Bank says that growth in credit is against the background of accommodative monetary policy and a scaling down of liquidity absorption through issuance of Bank of Botswana Certificates (BoBCs), given the need to encourage financing for viable bankable projects. 


“Overall, the banking system indicators, including low default ratios for household borrowing, suggest a stable financial environment, with the aggregate ratio of non-performing loans to total loans increasing marginally from 3 per cent in December 2013 to 3.1 per cent in June 2014,” the Bank states. 


The central bank further says that in the context of projected GDP growth, the current assessment is that there is a low risk of widespread loss of employment income that could trigger a significant increase in default rates. 


“Thus, the current profile of household debt is consistent with the stable financial sector.” 
 The Bank states that growth in broad money supply increased by 7.8 per cent year on year to May 2014, thus reflecting the impact of the 14 per cent and 14.3 per cent growth in credit and net foreign assets respectively.


On national inflation, the Bank states that the rate grew slightly from 4.1 to 4.6 per cent between December 2013 and June 2014 due to the impact of the alcohol levy and tobacco, as well as higher education and medical costs. 


Information from the central bank states that the annual price increase was subdued especially on food, transport and housing. 
“The appreciation of the Pula against the South African Rand also helped to moderate imported inflation,” the Bank states. 


Bank of Botswana states that economies continue to introduce structural reforms to foster competitiveness and balanced growth and regulatory reforms to promote financial sector resilience and effective support for economic activity. 


“World inflation increased, but was moderated by stable energy prices (given adequate supply and minimal negative impact of geopolitical conflicts), spare capacity in major economies, as well as subdued growth in global demand,” the monetary statement reads. 


Bank of Botswana states that monetary policy implementation In Botswana was in the context of below-trend GDP performance (negative output gap). 


Domestic demand pressures were modest, partly indicative of subdued growth in personal income and slow growth in government expenditure. 


These factors and low inflation rate resulted with the Bank Rate being maintained at 7.5 per cent in the first half of 2014. 


Moving forward, the Bank says that inflation is expected to be within the objective range for the remainder of the year. 


Upside risks to the inflation outlook relate to any substantial increase in administered prices and government levies as well as any increase in international oil and food prices beyond forecasts. 


“However, inflation could be moderated by any further slowing down of growth in global economic activity,” the Bank states. 
Ends