26 Feb 2023

The Bank of Botswana (BoB) expects the country’s inflation rate to stabilise to fall within the its 3 to 6 per cent medium term objective range as early as the second quarter of 2024.

This was revealed by the Bank of Botswana Governor, Mr Moses Pelaelo, during a BoB Monetary Policy Committee (MPC) briefing in Gaborone.

The MPC meetings held on Wednesday and Thursday decided to maintain the Monetary Policy Rate (MoPR) at 2.65 percent. Mr Pelaelo revealed that they projected that inflation would initially fluctuate, but later follow a downward trajectory to fall within the objective range by mid-2024.

“The projected decrease in inflation into the medium-term is due to the dissipating impact of the earlier increases that administered prices, recent decrease in domestic fuel prices, modest domestic demand, current monetary policy posture, as well as the expected decrease in global inflation and international commodity prices,” Mr Pelaelo said.

He said another factor to possibly lower inflation would be the implementation of a smaller downward annual rate of crawl of the Pula exchange rate, which is 1.51 percent compared to 2.87 percent.

He nonetheless cautioned that their forecast was subject to risks which include the potential increase in international commodity prices beyond current forecasts; and possible annual price adjustments on the domestic front; any upward wage increments; and any price overshooting in the wake of the reversion of Value Added Tax (VAT) to 14 per cent.

The governor also said the MPC noted government’s supporting economic transformation reforms, which he said included the implementation of the Transitional National Development Plan, reforms to further improve the business environment, affordable credit as well as the improvement in water and electricity supply.

“Against this background, enhanced productivity, innovation and the resultant international competitiveness of domestic firms could contribute to lower domestic inflation,” Mr Pelaelo said. He said the MPC decided that seven day Bank of Botswana Certificates including repos and reverse repos would continue to be conducted at the MoPR of 2.65 per cent and the Standing Deposit Facility (SDF) Rate would be maintained at 1.65 per cent, 100 basis points below the MoPR.

Additionally, the Standing Credit Facility (SCF) rate would be maintained at 3.65 per cent.BOPA