24 Nov 2013

Reduction in the bank rate is intended to promote higher rate of economic growth and employment creation through an increase in demand and investment.

The Minister of Finance and Development Planning, Mr Kenneth Matambo told Parliament on November 21 that a change in the bank rate signals direction of monetary policy, based on Bank of Botswana’s assessment of the outlook for inflation and economic performance.

Mr Matambo noted the change results in similar adjustments of interest rates by other financial institutions, notably commercial banks. He stated that generally lending interest rates add to the cost of doing business and other economic activities, therefore lower lending rates moderate borrowing expenses and increase the likelihood of more businesses and consumers adding bank loans to their financing options.

The funds raised through borrowing, he said, contributed to growth in investment and consumption which tended to increase overall economic activity. Mr Matambo stated that in deciding on the lending rates charged to clients, commercial banks take the prime lending rate as a reference point and the additional charge over and above the prime lending rate is determined by the risk associated with such lending.

Regarding unsecured lending, he said the additional interest rates above the prime lending rate from an average of six percent to 12 per cent, depending on the risk profile of the borrower, noting that currently the prime rate is 9.5 per cent.

Therefore the interest rate charged on an unsecured loan would range from an average of 15.5 per cent to 21.5 per cent. Other lenders like micro-lenders, he said can charge up to 35 per cent interest rate on loans.

However, regarding these high interest rates, the ministry was working with the World Bank on a study aimed at strengthening the credit reporting system in Botswana, he said.

He stated that the outcome of the study will go a long in creating a sound and fair extension of credit to businesses and consumers because lending institutions will have access to credit information of clients.

Mr Matambo said there was no direct impact of the reduction of bank lending rates on the overall fiscal strategy of the country. However, he said there was an indirect impact in that, as businesses access finance at lower rates, production or investments increase, which has a positive effect on economic growth, employment creation and reduction of poverty.

The minister was responding to a question asked by the Member of Parliament for South East South, Mr Odirile Motlhale who had requested him to state the purpose of cutting bank lending rate and the highest interest rate for unsecured loan charges by banks as well as other lenders.

Mr Motlhale also asked the minister to state the impact of this on the overall fiscal strategy of the country. ENDS