Bank of Botswana’s (BoB) Monetary Policy Committee (MPC) has resolved to maintain the Monetary Policy Rate at 1.9 per cent at its meeting on November 7, 2024. In a statement the BoB said: “the prospects for significant economic growth remain limited and that the economy will continue to operate below full capacity in the short term and marginally recover in the medium term.
This should not generate demand-driven inflationary pressures. Thus, inflation is forecast to remain low into the medium term, averaging 2.8 percent in 2024, 3.1 percent in 2025 and 5.3 percent in 2026. Similarly, businesses expect inflation to be within the medium-term objective range, suggesting that inflation expectations are well anchored.
Given the current economic conditions and the outlook for both domestic and external economic activity, the MPC decided to maintain the MoPR at 1.9 percent”.
The bank forecasts inflation to remain low into the medium term, averaging 2.8 percent in 2024, 3.1 percent in 2025 and 5.3 percent in 2026.
“The risks to the short-term inflation outlook are assessed to be skewed to the downside mainly on account of subdued domestic and global economic activity, limited fiscal space and the potential fall in international commodity prices.
However, in the medium term, inflation could be higher than projected if international commodity prices were to increase above current forecasts, and supply as well as logistical constraints in the global value chain persist.
Furthermore, inflation may rise above current forecasts due to possible upward adjustment in administered prices that are not factored in the current projection,” said the bank.
The bank said data released by Statistics Botswana show contraction in economic activity due to factors that include weaker performance of the non-mining sectors and the impact of lower external demand for mining sector production (especially diamonds).
“This has led to reduced export earnings, which is constraining government spending and its impact on economic activity.
Real gross domestic product (GDP) declined by 0.5 percent in the second quarter of 2024, compared to a growth of 3.3 percent in the corresponding quarter in 2023.
Meanwhile, economic activity remained restrained in the third quarter of 2024. According to the October 2024 World Economic Outlook, global output growth is forecast at 3.2 percent for both 2024 and 2025, slightly lower than 3.3 percent recorded in 2023. For Botswana, the International Monetary Fund projects domestic economic growth of 1 percent for 2024, down from 2.7 percent in 2023.
This decline is partly due to a downturn in the diamond industry, driven by weak global demand and high inventory levels,” the bank said.