27 Feb 2019

Bank of Botswana is concerned about the incipient personal greed and reported governance failures in some segments of the financial sector.

Launching the 2019 Monetary Policy Statement in Gaborone on February 25, the governor of Bank of Botswana, Mr Moses Pelaelo said such greed had the potential to erode fiduciary responsibilities and consequently undermine public confidence in financial markets.  

Nevertheless, Mr Pelaelo assured the international community that, in collaboration with all key stakeholders, the bank would do all that is necessary to preserve the integrity, safety and soundness of the financial system. 

He explained that such would include working tirelessly to support government actions and programmes, coordinated by the Financial Intelligence Agency, in continuing to build a robust and sustainable Anti-Money Laundering and the Combating of the Financing of Terrorism architecture for Botswana.  

He pointed out that the bank evaluates monetary policy implementation framework on a regular basis for effectiveness, and introduces refinements where necessary.  

“In this respect, during this year, the bank will adopt what is known as reserves averaging in the determination of Primary Reserves Requirement for banks and also shorten the maturity of the 14-day BoBCs to seven days.  

He said under reserves averaging’, commercial banks do not have to meet the primary reserve requirement daily, but rather fulfil the statutory requirement on an average basis over the maintenance period.

He stated that reserves averaging, which was used in some jurisdictions, has been shown to improve liquidity management by commercial banks and foster more effective resource allocation through the interbank market as well as reduce the demand for excess reserves held for precautionary purposes. 

Mr Pelaelo said the reduction of the maturity period of the primary Open Market Operations tool, the 14-day (BoBCs), to seven days, would enable shorter and simpler forecasting horizon for liquidity management by both the BoB and commercial banks, with more accurate outcomes.  

He noted that in turn, it was expected to provide a solid basis for the starting point of the monetary policy transmission mechanism, supporting the extension of the policy signal along the yield curve. 

He said those enhancements required input and cooperation from commercial banks, adding that in that regard, consultations with the banks would commence shortly, with a view to ensure implementation of those measures within a short period of time.  

In addition, Mr Pelaelo said during the coming months, the bank would consult the market on further possible changes to monetary operations and the ‘anchor policy rate. 

For example, whether the bank rate or the BoBC rate was the more proximate to market considerations for policy transmission purposes. 

He said the objective of those refinements was to enhance the potency of the policy rate in the transmission of monetary policy signals as well as its influence on subsequent market reaction and posture.  

Furthermore, Mr Pelaelo said there was need to spur the development and efficacy of the money markets, for the purposes of effective policy transmission, as well as management, access and flow of liquidity among the commercial banks. 

He mentioned that alongside those measures, designed to ensure better structural alignment of short-term market rates and desirable policy transmission, any notional ceiling on the issuance of BoBCs would be lifted. 

He said that approach allowed greater scope and flexibility for unconstrained and, therefore, effective liquidity absorption by the central bank in response to market developments.  

Meanwhile, Mr Pelaelo thanked businesses that dutifully participate in the Business Expectations Survey and appreciated their support and input into the analysis of economic developments and policy responses. 

He encouraged other businesses, that were sometimes reluctant to participate, to join in facilitating comprehensive and informed data and policy analysis. Ends