25 Apr 2019

The meeting of Bank of Botswana’s (BoB) Monetary Policy Committee (MPC) has decided to maintain the bank rate at 5 per cent.

Briefing members of the media about the outcome of the meeting which was held on April 24, BoB governor, Mr Moses Pelaelo, said as inflation was focused to remain within the banks’ 3 to 6 per cent objective range in the medium term, the outlook for price stability remained positive. 

Between February and March 2019, he said inflation was unchanged at 3.3 per cent, adding that “subdue domestic demand pressures and a modest increase in foreign prices contributed to the positive inflation outlook, in the medium term. This outlook is subject to upside risks emanating from the potential rise in administered prices, in particular, domestic fuel prices and government levies and on taxes beyond current forecast,” he added. 

However, BoB governor said restrained growth in global economic activity, technological progress, and productivity improvement presented downside risk to the outlook. 

Due to the continued good performance in non-mining sectors and the recovery in mining output, he said Real Gross Domestic Product (GDP) grew by 4.5 per cent in 2018, compared to a lower expansion of 2.9 per cent in 2017.

Additionally, Mr Pelaelo said mining output expanded by 7.4 per cent in 2018, compared to a contraction of 11.1 per cent in 2017, whilst non-mining GDP grew by 4.1 per cent in 2018, compared to 4.8 per cent in 2017.

The governor said in 2019 Gross Domestic Product was projected to increase by 4.2. He said the significant influence was on domestic economic performance, including; conducive financing conditions as indicated by accommodative monetary policy and sound financial environment that facilitate policy transmission and intermediation and risk mitigation. 

“Moreover, it is anticipated that the increase in government spending, as well as implementation of initiatives, such as the Doing Business Reforms, should also be supportive of economic activity,” said Mr Pelaelo 

Overall, in the short to medium term, Mr Pelaelo said the economy was projected to operate close to, but below the full capacity, thus posing no upside risks to the inflation outlook.

Furthermore, he said global output growth was expected to ease to 3.3 per cent in 2019, from an estimated expansion of 3.6 per cent in 2018. 

This moderation in global growth, the governor said “was as a result of various country-specific factors, which include, amongst others; trade tensions which could flare up again thereby hampering confidence, investment and growth, continuing policy uncertainty, possible slower growth in China and a no deal BREXIT, tightening financial condition, geopolitical risks and high debt levels.”

Regionally, Mr Pelaelo said the South African Reserve bank revised its forecast for GDP growth for 2019 downwards to 1.3 per cent from 1.7 per cent. 

This, he said resulted from the larger than expected slowdown in the global economy, decline in business confidence and potential supply-side disruptions from load shedding in that country.

The current state of the economy and the outlook for both domestic and external economic activity suggest that the prevailing monetary policy stuns is consistent with maintaining inflation within the objective range of 3 to 6 per cent in the medium term, consequently, MPC of BoB has decided to retain the bank rate at 5 per cent.’ 

In line with the reforms to monetary operations, BoB governor revealed that with effect from April 30, 2019 BoB would introduce a new 7-day BoB Certificate, as the main instrument for conducting monetary operations, to replace the existing 14-day BoB Certificate. 

He emphasised that the move to the 7-day BoB Certificate represented a purely technical change to the conduct of monetary operations, ‘with no shift to the monetary policy stuns.’ Ends