21 Jun 2017

The Bank of Botswana Monetary Policy Committee (MPC) has left the bank rate unchanged at 5.5 per cent, as inflation is expected to remain within the medium-term objective range of 3 to 6 per cent.

Briefing the media following the committee meeting, the governor of Bank of Botswana, Mr Moses Pelaelo said the outlook for price stability remained positive as inflation, although increasing slightly in the short-term, was forecast within the objective range in the short to medium-term.

Inflation increased marginally from 3.4 per cent in April to 3.5 per cent in May.

Mr Pelaelo said the projected modest increase in inflation was due to higher electricity and water tariffs and international oil prices.

He said subdued domestic demand and the modest increase in foreign prices contributed to the positive inflation outlook in the medium-term.

“This outlook is subject to downside risks emanating from sluggish economic activity and the resultant low commodity prices,” he said.

He added that any anticipated upward adjustment in administered prices and government taxes, and any increases in international commodity prices beyond the current forecasts presented upside risks to the inflation outlook.

Meanwhile, Mr Pelaelo said Botswana’s economy grew by 4.3 per cent in 2016, and that it was driven mainly by improvements in the diamond trade, which contributed to 5.5 per cent growth of the non-mining sector, from 1.7 per cent in the previous year.

Mining output contracted by 3.7 per cent in 2016 compared to a decrease of 19.6 per cent in 2015.

The governor said although credit has been declining, lending to businesses, excluding parastatals, has increased at a higher rate of 9.3 per cent in April this year compared to 3.9 per cent in April last year.

However, it is projected that domestic non-mining output will be below trend in the near term, constrained by continued modest growth of household incomes and restrained economic expansion in major trading partners.

“However, gradual economic recovery is expected in the medium-term in response to anticipated improvements in external economic conditions,” he said.

On the international scene, Mr Pelaelo said global economic output was projected to grow by 3.5 per cent in 2017, compared to an estimated 3.1 per cent in 2016, and by 3.6 per cent in 2018, reflecting improvements in performance in both advanced and emerging market economies.

“However, uncertainty surrounding global trade and openness, inward-looking policies as well as moderation of growth in China could adversely affect the medium-term growth prospects,” he said.

He said the recent downgrade of the South African economy could undermine growth by constraining private investment and household consumption.

“Potential negative spillovers into Botswana include higher inflation, lower exports and SACU [Southern African Customs Union] revenue, although the risks are considered to be moderate overall,” he said. BOPA