Is BoB losing inflation battle?

BAKANG TIRO

editors@thepatriot.co.bw

Bank of Botswana (BoB) principals say they are doing well in terms of containing the sky rocketing inflation with the latest inflation figure rising to 14.3% in July 2022.

On the other hand economic experts doubt that the central bank would win the inflation battle soon.

Governor of the central bank, Moses Pelaelo, said the bank is doing everything to tame inflation.

He said the MPC expects inflation to remain above the objective range into the medium term but trend downward from the fourth quarter of 2022 and fall within objective range in the third quarter of 2024.

He said the latest increase in inflation was broad-based across categories of goods and services and, was more pronounced with respect to domestic fuel prices and Air Botswana passenger fares.

“The projected decrease in inflation in the medium term is due to the dissipating impact of earlier increase in administered prices, anticipated decrease in the trading partner countries’ inflation and the international commodity prices, and higher cost of credit, globally,” he added.

In the circumstances, central bank Governor said the MPC decided to increase the Monetary Policy Rate (MoPR) by 50 basis points to 2.65% so as to anchor expectations for desired low level of inflation.

Meanwhile, Economics Lecturer at Ba Isago University Dr Lovemore Taonezvi said its bad times.

“Bank of Botswana finds itself between a rock and a hard place considering that a hike in interest rate to reduce the current cost-push inflation will increase borrowing costs and consequently dampen economic growth. On the other hand, leaving interests unchanged will see further erosion of consumer purchasing power and worsen poverty levels in the country,” he declared.

He had hoped that the bank would have left the interest rate unchanged. 

“I say this because from a fiscal side, the Government has intervened to reduce the VAT and zero-rated cooking oil and LP gas and I expect inflation to be lower in August than the 14.3% registered in July. Furthermore, global demand is decelerating and the expectations of the global economic recessions are growing so this will put downward pressure on fuel and food prices,” he added.

 The Ba Isago University don does not expect inflation to rise beyond the July mark.

“All things remaining constant, the rising inflation in Botswana reduces the value of the Pula against the Rand and other currencies since the demand for Botswana products and services will be negatively impacted,” said Dr Taonezvi.

The Director of Research and Financial Stability at BoB Dr Lesedi Senatla has said the bank is closely monitoring the inflation rate.

According to Dr Senatla, the bank is confident that the inflation will be brought under control.

Positive Signs

Amid rising inflation, Pelaelo said the MPC has noted growth-enhancing economic transformation reforms and supportive macroeconomic policies currently being implemented.

“These include easy access to credit at a modest relative cost, improvements in water and electricity supply, reforms to further improve the business environment and government interventions against COVID-19, including effective vaccination rollout programme,” he said.

He added: “Against this background, enhanced productivity, innovation, increased production capacity and efficiencies, as well as resultant competitiveness of domestic firms against imports and in international markets could contribute to sustained maintenance of modest domestic inflation”.