Botswana holds rate as inflation seen in target range

April 27, 2016

By CentralBankNews.info
    Botswana’s central bank left its benchmark Bank Rate steady at 6.0 percent, reiterating its view from February that the “current state of the economy, domestic and external economic outlook and the inflation forecast suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the Bank’s medium-term objective range of 3 – 6 percent.”
    The Bank of Botswana (BoB), which has maintained its rate since cutting it by 50 basis points in August 2015, added in its statement from April 26 that credit growth was at a sustainable level and posed no threat to financial stability.
    Botswana’s inflation rate was unchanged at 3.0 percent in March and February while the exchange rate of the pula has been appreciating since mid-January.
    The pula was quoted at 10.73 to the U.S. dollar today, up from 11.26 at the end of 2015 for a rise of 4.9 percent.
   Botswana’s economy was estimated to have contracted by 0.3 percent in 2015 after growth of 3.2 percent in 2014, mainly due to a 19.7 percent decline in mining output on lower demand for diamonds and copper. This has had a spillover effect on non-mining activities, along with regional drought and shortages of electricity and water.
    The central bank said the outlook was subject to downside risks from sluggish global growth and weaker commodity prices while the outlook could be “adversely affected” by large increases in administered prices and government fees as well and higher-than-expected oil and food prices.
    Last month the International Monetary Fund (IMF) forecast a gradual economic recovery in Botswana over the next three years based on higher diamond prices and the impact of fiscal stimulus while inflation is expected to remain within the bank’s target range.
   The IMF forecast economic growth of 3.7 percent this year and average inflation of 3.4 percent.

   
    The Bank of Botswana issued the following statement:

“The meeting of the Monetary Policy Committee held on April 26, 2016 concluded that the outlook for price stability is positive, with the forecast pointing to inflation remaining within the 3 – 6 percent objective range in the medium term.

Global output is projected to grow by 3.2 percent and 3.5 percent in 2016 and in 2017, respectively, compared to the 2015 estimate of 3.1 percent. However, economic performance across the globe is uneven, with challenges relating to economic restructuring in both developed and emerging market economies constraining medium-term growth prospects.

In Botswana, GDP is estimated to have contracted by 0.3 percent in 2015 compared to the 3.2 percent growth in 2014, thus reflecting a decline of 19.7 percent in mining production. Non-mining output increased by 3.5 percent. Inflation was unchanged at 3 percent between February and March 2016. Modest domestic demand and subdued foreign price developments contribute to the positive inflation outlook in the medium term. The outlook is subject to downside risks emanating from sluggish global economic activity and the resultant weakening commodity prices. It could, however, be adversely affected by any unanticipated large increase in administered prices and government levies as well as international oil and food prices beyond current forecasts.

The current state of the economy, domestic and external economic outlook and the inflation forecast suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the Bank’s medium-term objective range of 3 – 6 percent. Accordingly, the Monetary Policy Committee decided to maintain the Bank Rate at 6 percent.

Monetary policy is also aligned with the need to safeguard financial stability. In this regard, credit growth is considered to be at a sustainable level; it is posing no threat to financial stability. “

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