25 Oct 2017

Bank of Botswana (BoB) has announced a reduction in the bank rate from 5.5 per cent to 5 per cent.

 Briefing the media on October 24, BoB governor, Mr Moses Pelaelo explained that the outlook for price stability remained positive, as inflation was forecasted to remain within the 3 to 6 per cent objective range in the medium term. 

He said it was worth noting that inflation had decreased from 3.4 per cent in August to 3.2 per cent in September.

Mr Pelaelo attributed the positive inflation outlook to subdued domestic demand pressures as well as the modest increase in foreign prices.

“This outlook is subject to downside risks emanating from sluggish global economic activity and the resultant low commodity prices,” he stated, noting that conversely, any substantial unanticipated upward adjustment in administered prices and government levies and any increase in international commodity prices beyond the current forecasts presented upside risks to the inflation outlook.

The governor also indicated that the Gross Domestic Product (GDP) grew by 3.1 per cent in the 12 months before June this year compared to a contraction of 0.7 per cent in the corresponding period ending in June 2016.

He observed that the improvement in growth reflected a 4.9 per cent increase in non-mining activity from 3.3 per cent in the same period in the preceding year.

“However, output in the mining sector contracted by 10.1 per cent in the 12 months to June 2017 compared to a relatively large contraction of 22.9 per cent in the corresponding period in the previous year. It is projected that domestic non-mining output will be below trend in the short to medium term, constrained by continued modest growth in household incomes and restrained economic expansion in major trading partners,” he said.

Mr Pelaelo also stated that gradual economic recovery was expected in the medium term in response to anticipated improvement in external economic conditions.

Furthermore, he said global output was projected to grow by 3.6 per cent compared to an estimated 3.2 per cent in 2016 and 3.7 per cent in 2018.

This, he said, would reflect an expected improvement in performance in both advanced and emerging market economies.

He, however, pointed out that uncertainty surrounding global trade policy as well as the moderation of growth in China could adversely affect the medium term growth prospects.

He said regionally, the projected weak economic growth in South Africa this year due to persistent subdued demand and low investor confidence could undermine growth by constraining private investment and household consumption.

Mr Pelaelo further pointed out that the current state of the economy, both the domestic and external economic outlook, as well as the inflation forecast, provided scope for easing monetary policy to support economic activity without undermining maintenance of inflation within the bank's medium term objective range of 3 to 6 per cent.

“Accordingly, the monetary policy committee decided to reduce the bank rate by 50 basis points to 5 per cent. Commercial banks are required to make the necessary interest rate adjustment with immediate effect to reflect this policy decision,” he stated. ENDS