Botswana holds rate, subdued demand checks inflation

December 18, 2017

By CentralBankNews.info
      Botswana’s central bank kept its benchmark Bank Rate at 5.0 percent, citing a positive outlook for price stability due to “subdued domestic demand pressures and the modest increase in foreign prices.”
      The Bank of Botswana (BB), which in October cut its rate by 50 basis points on decelerating inflation, added the current state of the economy and the outlook for both domestic and external economic activity is consistent with keeping inflation within the bank’s target range of 3.0 to 6.0 percent in the medium term.
      Botswana’s inflation rate eased to 2.9 percent in November from 3.0 percent in October, continuing the downward trend since hitting 3.5 percent in May and June.
      BB said the inflation outlook is subject to downside risks from “sluggish global economic activity and the potential fall in commodity prices,” while upside risks stem from an unexpected increase in administered prices, government levies or taxes and any rise in international commodity prices beyond current forecasts.
      Botswana’s economy grew by 3.1 percent in the 12 months to June compared with contraction of 0.7 percent in the same 2016 period, with Gross Domestic Product in the second quarter up by an annual rate of 1.0 percent, up from 0.8 percent in the first quarter.
      Non-mining activity rose 4.9 percent in the year until June, up from 3.3 percent last year while output in the mining sector contracted by 10.1 percent, better than a 22.9 percent contraction in the same 2016 period.
      Botswana’s economy grew by 4.3 percent in 2016, up from contraction of 1.7 percent in 2015 as diamond sales rebounded and easy fiscal and monetary policies supported activity.
      Although non-mining output is expected to remain below trend in the short-to-medium term from modest growth in household incomes, BB still expects a gradual economic recovery in the medium term from stronger external growth.
       Botswana’s pula has been trending higher since January 2016 and was trading at 10.06 to the U.S. dollar today, up 6.2 percent this year. 


      The Bank of Botswana issued the following statement:

“At the meeting held on December 18, 2017, the Monetary Policy Committee of the Bank of Botswana decided to maintain the Bank Rate at 5 percent. The outlook for price stability remains positive as inflation is forecast to be within the 3 – 6 percent objective range in the medium term. Inflation decreased from 3 percent in October to 2.9 percent in November 2017.

Subdued domestic demand pressures and the modest increase in foreign prices contribute to the positive inflation outlook in the medium term. This outlook is subject to downside risks emanating from sluggish global economic activity and the potential fall in commodity prices. Conversely, any substantial unanticipated upward adjustment in administered prices and government levies and/or taxes and any increase in international commodity prices beyond current forecasts present upside risks to the inflation outlook.

GDP in Botswana grew by 3.1 percent in the twelve months to June 2017 compared to a contraction of 0.7 percent in the corresponding period ending in June 2016. The improvement in growth reflects a 4.9 percent increase in non-mining activity, from 3.3 percent in the same period. However, output in the mining sector decreased by 10.1 percent in the twelve months to June 2017, albeit smaller than the large contraction of 22.9 percent in the previous period. It is projected that domestic non-mining output will be below trend in the short-to-medium term, constrained by continued modest growth in household incomes and moderate economic expansion in major trading partners.
Nevertheless, gradual economic recovery is expected in the medium term in response to anticipated improvement in external economic conditions.

Global output is forecast to grow by 3.6 percent in 2017, compared to an estimated increase of 3.2 percent in 2016, and by 3.7 percent in 2018, reflecting expected improvement in performance in both advanced and emerging market economies. However, uncertainty surrounding global trade policy and openness, as well as moderation of growth in China, could adversely affect the medium-term growth prospects. Regionally, the projected weak economic expansion in South Africa in 2017 due to persistent subdued demand and low investor confidence could potentially undermine domestic growth prospects by constraining private investment and household consumption.

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 maintaining inflation within the objective range of 3 – 6 percent in the medium term. Therefore, the Monetary Policy Committee decided to keep the Bank Rate unchanged at 5 percent.

MPC meetings for 2018 are scheduled as follows:
February 13, 2018
April 30, 2018
June 19, 2018

August 23, 2018
October 22, 2018
December 4, 2018 “

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