BoB retains bank rate

The Bank of Botswana’s (BoB) Monetary Policy Committee (MPC) has resolved to retain the bank rate at 5 percent following its meeting on June 27, 2019.

The bank’s Governor, Moses Pelaelo made the announcement to the media the same day. The Governor highlighted that the significant influences on domestic economic performance include conducive financing conditions as indicated by accommodative monetary policy and sound financial environment that facilitate policy transmission, intermediation and risk mitigation.

“Moreover, it is anticipated that the increase in government spending, as well as implementation of initiatives, such as the doing business reforms, should also be supportive of economic activity,” he said.  

He made reference to the latest Business Expectation Survey, which indicates that businesses are optimistic about economic developments in 2019 and therefore expect a higher rate of growth compared to 2018.

The economy is projected to operate close to, but below full capacity in the short to medium term. The Governor believes this will pose no upside risk to the inflation outlook.

He also announced that inflation was below the lower bound of the Bank’s objective range of 3 – 6 percent in April and May 2019, mainly reflecting base effects associated with the increase in public transport fares and electricity tariffs in the second quarter of 2018.

He, however, noted that the statement has not changed much from the last that the MPC made earlier in the year.

Pelaelo also noted that in the medium term, inflation is forecast to remain within the Bank’s 3 – 6 percent objective range with subdued domestic demand pressures and the modest increase in foreign prices contributing to the positive inflation outlook in the medium term.

“This outlook is subject to upside risks emanating from the potential rise in administered prices and government levies and/or taxes, beyond current forecasts,” he announced and stated that modest growth in global economic activity, technological progress and productivity improvement present downside risks to the outlook.

On Real GDP growth, the Governor stated that it grew by 4.5 percent in 2018, compared to a lower expansion of 2.9 percent in 2017.

“This was mainly attributable to the continued good performance in non-mining sectors and the recovery in mining output,” he said. He also announced that mining output expanded by 7.4 percent in 2018, compared to a contraction of 11.1 percent in 2017 while Non-mining GDP grew by 4.1 percent in 2018, compared to 4.8 percent in 2017.

According to findings by the MPC and the central bank, global output growth is expected to ease to 3.3 percent in 2019 from an estimated expansion of 3.6 percent in 2018.

The moderation in global growth was due to various factors, including amongst other things; trade and geopolitical tensions which have the possibility to hamper confidence, investment and growth; continuing policy uncertainty; possible slower growth in China; a “no-deal” Brexit; tightening financial conditions and high debt levels.

“Regionally, the South African Reserve Bank revised the forecasts for GDP growth for 2019 downwards to 1 percent from 1.3 percent,” he stated. This, he continued, results from the larger than expected slowdown in the first quarter, which is attributable to weak business and consumer confidence.

The current state of the economy and the outlook for both domestic and external economic activity suggest that the prevailing monetary policy stance is consistent with inflation reverting to within the objective range of 3 – 6 percent in the medium term. Consequently, the MPC decided to retain the Bank Rate at 5 percent.

A full update of the Bank’s outlook for the domestic economy and inflation will be published in the Monetary Policy Report following the MPC meeting of August 29, 2019.