20 Jun 2018

The Bank of Botswana (BoB) monetary policy committee has decided to maintain the bank rate at five per cent.

The bank’s governor, Mr Moses Pelaelo said this was because the outlook for price stability remained positive as inflation was forecasted to be within the 3 - 6 per cent objective range in the medium term.

“Subdued domestic demand pressures and the modest increase in foreign prices contribute to the positive inflation outlook in the medium term.

The outlook is subject to upside risks emanating from the potential rise in administered prices, commodity prices and government levies or taxes beyond current forecasts,” he said.

He, however, said restrained global economic activity, technological progress and productivity improvement presented downside risks to the outlook, highlighting that real GDP in the country grew by 2.4 per cent in 2017 compared to 4.3 per cent in 2016.

“The slower growth reflects a lower increase of 4.2 per cent in non-mining activity compared to 5.5 per cent in the previous year. The mining output, however, contracted significantly by 11.2 per cent in 2017 compared to a decline of 3.5 per cent in 2016,” Mr Pelaelo said.

He said the GDP was projected to expand at a faster rate in the short-to-medium term driven largely by growth in the services sector and recovery in mining activity in line with the positive global economic prospects.

Furthermore, the governor said the projected accommodative monetary conditions in the domestic economy and expansion in government expenditure as well as relative stability in water and electricity supply, were expected to support economic activity in the non-mining sectors.

“Overall, the economy is expected to operate close to, but below full capacity in the medium-term. Global output growth is estimated at 3.8 per cent in 2017 and is projected at 3.9 per cent in 2018 and 2019, reflecting broad-based improvement in economic performance,” he said.

He, however, said protectionist trade policies, the potential build-up of financial vulnerabilities induced by easy financial conditions, geo-political tensions and adverse weather conditions could negatively affect the medium-term growth prospects.

Regionally, he said the South African GDP contracted by 2.2 per cent in the first quarter of 2018. However, he said growth was still expected to be better in 2018 than in 2017 against the backdrop of higher commodity prices and more positive investor sentiments. Ends