BoB keeps rate at 1.9%

The central bank, Bank of Botswana’s (BoB) Monetary Policy Committee (MPC) has retained the bank rate at 1.9 percent while reducing the Primary Reserve Requirement (PPR) from 2.5 percent to 0 percent. Governor Cornelius Dekop while addressing the media on Thursday said the PRR is a monetary policy tool used to manage structural liquidity by way of requiring banks to hold a proportion of their deposits at the central bank. 

Therefore, Dekop said the PRR can be reduced in instances where there is structural shortage in liquidity and vice versa, when there is structural excess liquidity. 

Delving into economy, he said the economy is expected to operate below full capacity in the short term and recover marginally in the medium term. 

“This should not generate demand-driven inflationary pressures. Thus, inflation is forecast to remain within the objective range in the medium term. Similarly, businesses expect inflation to be within the medium-term objective range, suggesting that inflation expectations are well anchored,” Dekop added. 

He noted that the MPC observes that market liquidity in the banking system has declined considerably, thereby constraining the desired impact of the current accommodative monetary policy stance. 

Meanwhile, he said as reported at the last MPC meeting, 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. 

This decline follows a 5.3 percent contraction in the first quarter of 2024, indicating that the economy is in a recession. 

“The contraction in economic activity was attributable to weaker performance of the non-mining sectors and the impact of lower external demand for mining sector output, especially diamonds. As a result, export earnings have declined, limiting government spending and impacting overall economic activity,” he said. 

He said economic activity remained restrained in the second half of 2024. Dekop said, according to the October 2024 World Economic Outlook, global output growth is forecast at 3.2 percent for both 2024 and 2025, compared to 3.3 percent in 2023. 

For Botswana, indications are that the economy will contract in 2024 and moderately recover in 2025. The decline in 2024 is partly due to a downturn in the diamond industry, driven by weak global demand, which, however, is projected to recover in 2025.