Bank of Botswana cuts benchmark rate to 5.5%

Bank of Botswana (BoB), the country’s central bank has lowered the cost of borrowing arguing that fundamentals point to a need to easy the monetary policy and support economic activity. The bank’s Monetary Policy Committee (MPC) at its meeting on August 12, 2016 came to the conclusion that the outlook for price stability remains positive, with the forecast pointing to inflation being close to the lower end of the 3 – 6% objective range in the medium term.

Mining output has declined in the recent past
Mining output has declined in the recent past

“The current state of the economy and both the domestic and external economic outlook as well as the inflation forecast provide scope for easing monetary policy to support economic activity without undermining maintenance of inflation within the Bank’s medium-term objective range of 3 – 6 percent,” the MPC noted. “Accordingly, the Monetary Policy Committee decided to reduce the Bank Rate by half a percentage point to 5.5 percent.”

The Gross Domestic Product (GDP) in Botswana is estimated to have contracted by 0.2% in the twelve months to March 2016, compared to growth of 3.2% in March 2015, thus reflecting the decline of 21.4% in mining production.

Non-mining output increased by 3.8%. Inflation fell from 2.8% in May to 2.7 percent in June 2016. Low domestic demand pressures and subdued foreign price developments contribute to the positive inflation outlook in the medium term.

“This outlook is subject to downside risks emanating from sluggish global economic activity and the consequent low commodity prices. It could, however, be adversely affected by any unanticipated large increase in administered prices and government levies as well as international oil and food prices beyond current forecasts,” the bank said.

BoB added that the monetary policy is also aligned with the need to safeguard financial stability. In this respect, credit growth is considered to be at a sustainable level and poses no threat to financial stability.

“Commercial banks must make the necessary interest rate adjustments with immediate effect to reflect this policy decision.”