22 Feb 2024

Bank of Botswana projects inflation rate to remain within its medium term objective range of 3 – 6 per cent, the Monetary Policy Statement (MPS) released on Wednesday states.

The rate is expected to remain within the range despite the 2024/25 expansionary budget, on account of dissipating impact of earlier increases in administered prices, downward adjustment in domestic fuel prices, the projected appreciation of the Pula against the Rand and the expected decrease in international prices, according to MPS.

“The monetary policy would focus on entrenching expectations of low, predictable and sustainable inflation, through timely response to price developments, while ensuring that credit and other market developments are in line with durable stability of the financial system,” says the statement.

It says the objective of the monetary policy is to achieve price stability, by ensuring inflation remains within the objective range of 3 – 6 per cent.

“What this means is this; in the context of the economy of Botswana, given its structure and level of development, and in order to achieve durable, sustainable, and inclusive economic growth, price increases should not persist below 3 per cent or above 6 per cent,” said the Bank’s Governor Mr Cornelius Dekop during the MPS launch.

He said it was not sufficient for the Bank to be within the objective range, but it should be done in a durable and sustainable manner.

Mr Dekop said monetary policy formulation also considered developments relating to stability of the financial system and prospects for economic growth.

“A sound and stable financial system is critical for effective transmission of monetary policy signals, facilitating the flow of funds and liquidity, as well as risk mitigation in support of economic activity,” he said.

The central bank governor said price stability as well as conducive monetary and financial conditions fostered effective mobilization of savings, productive investment, prudent allocation of credit, international competitiveness of domestic firms and sustained economic growth.

Meanwhile the Governor said the recent and prospective developments for both domestic and external economic activity suggested that the economy would operate below capacity in the short term. 

“If this situation persists, then it may allow for accommodative monetary policy in 2024,” he said.

Early this year, the weights of the constituent currencies in the Pula Basket stood at 45 per cent for the Rand and 55 per cent for the Special Drawing Rights (SDR).

A downward rate of crawl of 1.51 per cent of the nominal effective exchange rate was implemented for this year with a view to promote competitiveness of goods and services produced in Botswana.

“Notwithstanding, it continues to be important that lasting improvements in competitiveness will derive from improvements in productivity of the economy enabled by implementation and traction of initiatives, such as those captured in the Transitional National Development Plan, the Reset and Reclaim Agenda and in the minister’s February 2024 budget speech,” said Mr Dekop.

He said the Bank remained committed to maintaining price and financial stability adding that by focusing on its mandate, it contributes to the maintenance of a conducive environment for structural reforms and transformation initiatives to gain traction, leading to higher rates of growth needed to transform the economy to a high income status.

“Given that both monetary policy and fiscal policy are expansionary, immediate implementation of transformation initiatives and structural reforms are expected to raise prospects for faster growth and economic diversification,” said Mr Dekop.

At the time, the Monetary Policy Committee (MPC) was yet to meet and release their statement with pundits believing it will remain accommodative given the favourable inflation climate. ends