23 Jun 2024

A reduction of 25 basis points (0.25 per cent) in interest rates to 2.15 per cent by the Bank of Botswana has distinct implications for loan payers and banks in general, says an Accountant in the Ministry of Finance, Ms Thato Chinga-Sebina.

Briefing BOPA on the recent rate cut, Ms Chinga-Sebina said there would be lower monthly payments for loan payers, citing that borrowers with adjustable rate loans, such as variable rate mortgages may see their monthly payments decrease as the interest rate drops.

Ms Chinga-Sebina said there would be cheaper borrowing costs especially for new loans, with mortgages, car loans, and personal loans, becoming slightly cheaper, making it less expensive to borrow money.

She said this would also lead to increased affordability, meaning that lower interest rates would make it more affordable for borrowers to take out larger loans or mortgages, potentially enabling them to purchase more expensive homes or goods.

As for banks, Ms Chinga-Sebina said there would be reduced interest income and banks would earn less interest on their loans, which could decrease their overall revenue from lending activities.

She also observed the potential increase in loan demand, stimulated by lower interest rates signalling new loans.

 She said as borrowing becomes more attractive, this could offset some of the lost income from lower rates. She also talked about the impact on net interest margin which means that the difference between what banks earn on loans and pay on deposits (net interest margin) could be compressed, potentially impacting profitability.

As for market dynamics, Ms Chinga-Sebina said banks may adjust their lending and deposit rates to maintain competitiveness in the market, which could influence their overall financial strategy and product offering.

Meanwhile, Stanbic Bank Botswana, Global Markets Corporate Dealer, Ms Onalethata Letlole said everyone was expected to benefit from the reduced rates, adding that exposure to high interest rates negatively affected their incomes.

However, she said to make it easy on people and to stimulate the economy, the central bank might take a further decision to cut the interest rate by approximately 0.25 per cent and that would likely happen around August 2024.

This generally presents a better time for businesses and individuals to consider borrowing money to stimulate their financial goals. ENDS