07 May 2013

Bank of Botswana (BoB) has announced that a meeting of its Monetary Policy Committee concluded that while the short term evolution of prices is unfavourable to the extent that inflation is forecast to remain above the 3 - 6 per cent objective range in the near term, the medium-term outlook continues to be positive.

In a press release, BoB has stated that global output is estimated to have increased by 3.2 per cent in 2012 and is projected to expand by 3.3 per cent in 2013.

The release further states that after slowing in 2012, GDP growth in emerging market economies is expected to regain momentum due to some improvement in both external and domestic demand.

This has translated into moderate global inflationary pressures, thus reflecting stable commodity prices and subdued growth in demand.

Moreover, persistent capacity underutilisation and high unemployment rates in major economies continue to restrain global inflation,” the release says.

Domestic output is reported to have grown by 3.7 per cent in the twelve months to December 2012, with the non-mining sectors slowing to 5.8 per cent from 7.8 per cent in 2011.

In addition, the release says,  mining sector contracted by 8.1 per cent and it is expected that non-mining output expansion will remain below potential in the medium term and will, therefore, exert minimal inflationary pressure. 

Furthermore, the release states that the impact of demand on economic activity will be modest, partly reflecting trends in government expenditure and personal incomes.

The release further states that inflation increased slightly from 7.5 per cent in February 2012 to 7.6 per cent in March 2013, with small offsetting price movements across a range of goods and services; inflation in March 2012 was 8 per cent.

Weak domestic demand and the forecast low external inflationary pressures contribute to the positive inflation outlook in the medium term. 

However, in the short term, inflation is expected to remain above the bank’s objective range of 3–6 per cent due to the impact of transitory factors, the release says.

“The underlying trend is forecast to be downwards, and this means that inflation is anticipated to converge ito themedium-term objective range in the second half of 2013.

This outcome could be adversely affected by any unanticipated large increase in administered prices and government levies, as well as international food and oil prices increasing beyond current forecasts,” states the release.

Elaborating on the Monetary Policy Stance, the release says that the current state of the economy, where output growth is below potential and characterised by high unemployment, could be reignited by a measured non-inflationary stimulus.

“Assumptions on both the domestic and external economi outlook and the inflation forecast suggest that a more accommodative monetary policy stance, at this time, is consistent with the achievement of the Bank’s 3 - 6 per cent inflation objective in the medium term.

Hence, the Monetary Policy Committee decided to reduce the Bank rate by half a percentage point to 9 per cent,” the release states.

Under the circumstances, commercial banks are expected toensure that savers generally earn positive real rates of return on their savings. ENDS