26 Feb 2026

Consumers should prepare for a complex inflation landscape as inflation is forecast to generally rise in the near term but to remain within the 3 - 6 per cent objective range into the medium term, supported by stabilising exchange rate dynamics and prudent monetary policy management.

Presenting the Bank of Botswana (BoB), Monetary Policy  Statement,  BoB governor Mr Lesego Moseki indicated that the anticipated increase was due to a combination of cost push pressures, second round effects and base effects associated with adjustments in administered prices. 

In this  context, Mr Moseki cautioned of a greater risk of inflation being higher than currently projected mainly due to the proposed 46 per cent increase in electricity tariffs by Botswana Power Corporation in April 2026, which would have a notable inflationary impact, if it materialises. 

He said  anticipated increase in public transport fares was also expected to be inflationary adding that   the outbreak of foot and mouth disease in Botswana in January 2026 and the resultant disease management measures through livestock movement and slaughter restrictions, could also lead to higher food inflation. 

Furthermore, Mr Moseki  indicated that the proposed reduction in VAT zero-rated items in the 2026 Budget Speech may lead to higher inflation as externally, international commodity prices could rise above current forecasts, and logistical constraints may persist. 

He nonetheless highlighted that inflation could, however be lower than projected if domestic and global economic activity remained subdued, fiscal space remained tight or if international commodity prices fall.

He said the earlier adjustment of exchange rate parameters also assessed to contribute marginally to the expected increase in inflation, given the high import intensity of the Botswana economy, although the direct market response to that adjustment was considered to have largely been absorbed. 

Mr Moseki stated that the projection also considered the maintenance of the Pula currency basket weights and the downward rate of crawl of 2.76 per cent for 2026, as well as the relatively low projections for trading partner countries’ inflation and international commodity prices.

“Inflation in Botswana is forecast to be higher than in the trading partner countries in 2026, necessitating a downward rate of crawl of the Pula exchange rate to maintain stability of the Real Effective  Exchange Rate(REER),” he said. 

He indicated that  maintaining REER stability was critical to safeguarding the competitiveness of domestic goods and services, supporting economic activity and promoting export performance. Mr  Moseki  noted that an annual downward  rate of crawl of 2.76 percent for the Nominal  Effective Exchange Rate(NEER) had been maintained for 2026. 

It is however worth noting that, domestic inflation averaged 2.7 per cent in 2025, remaining below the lower bound of the medium-term objective range of 3 - 6 percent for the most part of 2025, reflecting a benign inflation environment that provided monetary policy space to support economic stabilisation during a period of weak growth. 

The lower inflation outcome in 2025 was mainly on account of the decrease in water and electricity tariffs for low consumption households, as well as the decrease in fuel prices that resulted from the implementation of unitary pricing of petroleum products effected on November  8, 2025. In addition, the lower inflation was attributed to subdued domestic demand amid the ongoing recession.

Meanwhile, according to the December 2025 Business Expectations Survey, firms expect inflation to remain within the objective range in 2026, implying that inflation expectations are well anchored. BOPA