Rise in administered prices worsen inflation
Inflation expected to revert to normal in 2022
Sluggish vaccination rollout dampens recovery
The central bank, Bank of Botswana, forecasts that inflation will grow tremendously to reach about 8.5% in the third quarter of 2021 after rising to 6.2% in May 2021.
Bank of Botswana Governor Moses Pelaelo on Thursday said it is worrisome that inflation had exceeded the 3-6% medium objective range, saying it will hamper growth.
Statistics Botswana (SB) figures on inflation indicated that the May rise was driven by higher prices of food, alcohol, transport and other commodities after adjustment of Value Added Tax (VAT). Inflation in April reached 5.6%, the highest since July 2013.
Briefing the media on Thursday, Pelaelo said the bank anticipates that inflation will rebound to 3-6% range in the second quarter of 2022 after the bank revised its forecast of rebound in Q1 2022.
“As the central bank we have a medium forecast and it determines how we respond on issues like of inflation. Every decision we make is considered very carefully and the reason for maintaining current monetary policy is to support economic recovery. It is very key to have a macroeconomic stability. So the Monetary Policy Committee Meeting maintained bank rate at 3.755,” said Pelaelo.
He said the surge in inflation in May mainly reflects second-round effects of the recent upward adjustments in administered prices and overall risks to the inflation outlook are assessed to be skewed to the upside.
“These risks include the potential for increase in the international commodity prices beyond current forecasts; persistence of supply constraints due to the possible maintenance of travel restrictions and lockdowns and domestically based risk factors relating to second-round effects of the recent increases in administered prices that could lead to generalised higher prices,” he said.
According to BoB Governor, a slow rollout of vaccines, resulting in the continuance of weaker economic activity and the possible decline in international commodity prices could result in lower Inflation.
“Meanwhile, the adverse effects of the COVID-19 pandemic containment measures pose uncertainty and challenges to economic growth given Botswana’s vulnerability to external shocks, notably, on diamond prices and demand, tourism and delays in the importation of supplies,” he added.
However, it is estimated that the economy performed better in the first quarter of 2021 compared to the Q4 of 2020, given the gradual easing of COVID-19 movement restrictions and vaccine rollouts in Q1.
Director of Research and Financial Stability at BoB Dr Lesedi Senatla said a hike on fuel prices in the near future could be on the cards due to increases in fuel prices globally.
Dr Senatla said the bank has monetary tools that it can utilise to control surging inflation. “If inflation becomes too high, the economy can suffer; conversely, if inflation is controlled and at reasonable levels, the economy will rebound promptly. As long as the inflation is between 3-6% objective medium range we are fine with that but it if goes beyond its worrying,” he said.
Meanwhile, Pelaelo said the central bank has no information regarding the P2.6 billion that government recently secured from the World Bank to help resuscitate the economy. The World Bank loan, according to the Government, is to support the Economic Recovery and Transformation Programme (ERTP) which needs P14.5 billion to cushion against Covid-19 effects. World Bank Country Director for Eswatini, Botswana, Lesotho, Namibia and South Africa, Marie Francoise Marie-Nelly said Covid-19 placed a great burden on the country’s economy, people and firms.