26 Feb 2020

Governor of the Bank of Botswana, Mr Moses Pelaelo says the Monetary Policy Statement (MPS) is a key aspect of good governance, transparency and accountability.

Speaking at the launch of the 2020 MPS on Tuesday, Mr Pelaelo said the bank sought to promote an understanding of the monetary policy framework and its objectives through the statement.

He said the statement helped to guide the public’s inflation expectations towards convergence with the bank’s inflation objective , as such enhancing prospects for sustained maintenance of low, stable and predictable inflation.

Mr Pelaelo said the statement commits the bank with respect to its role in contributing to macroeconomic stability. He said this year’s statement followed a budget speech that proposed a new direction for policy and economic management.

He said the key role for a central bank, by which it was ultimately judged, was the extent to which it succeeded in preservation of the value and integrity of the national currency, pula and thebe.

Mr Pelaelo said the evolution of the monetary policy framework from early 2000s, had resulted in beneficial transition from high and volatile to the current low, stable and predictable inflation.

The governor said the adoption of the crawling band exchange rate regime in 2005 and the subsequent public announcement of its key parameters, the coefficients of the basket currencies and the annual rate of crawl, had contributed to stability of the inflation - adjusted exchange rate and it was also key to the success in achieving the inflation objective.

He said the levels of development of money and capital markets in Botswana needed to be raised significantly, and ‘this is with a view to improve on transmission and potency of macroeconomic policies and to have a greater impact on economic activity’.

“As of 2017, the composite financial index for Botswana was two thirds that of Namibia and a third and a quarter, respectively, of that for South Africa and Singapore and therefore this is one of the areas to attend to in the transformation agenda,” he said.

Mr Pelaelo said within such composite measures, Botswana fell short of international norms by nearly every metric and compares unfavourably with peer upper-middle income countries, stating that the nascent development of the interbank market and stock exchange were good examples in this regard.

He said going forward, policy consultations involving the Ministry of Finance and Economic Development and the bank, are focused on designing a transparent and more frequent issuance of a sufficient quantum of domestic government securities, in a predictable arrangement that, hopefully, will attract a larger pool of participants and support deficit financing, with lower risks.

“The objective of the bank’s monetary policy is to achieve price stability, defined as a low, stable and predictable level of inflation within 3-6 per cent, in the medium term,” said the governor.

He also said the monetary formulation was also aligned to safeguarding stability of the financial system.

He said in this regard, price stability as well as conducive monetary and financial conditions to foster mobilisation of savings, productive, investment, prudent allocation of credit and international competitiveness of domestic firms, in turn provided a sound and stable financial system, which was critical for effective transmission of monetary policy signals.

He said the domestic output expansion was estimated at 3.7 per cent in the 12 months to September 2019, compared to five per cent in the year to September 2018.

Mr Pelaelo stated that the lower increase in output was attributable to weaker performance of the mining sector, causing a slow growth in non-mining GDP from 5.1 per cent in the year to September 2018 to four per cent in the corresponding period ending September 2019.

He said the global GDP growth declined to an estimated 2.9 per cent in 2019 compared to 3.6 per cent in 2018, highlighting that the slowdown was widespread across countries and regions.

He said the global economic performance and sentiments were negatively affected by trade tensions between the US and China, as well as uncertain prospects of Brexit. ENDs