By CentralBankNews.info
Botswana’s central bank kept its Bank Rate unchanged at 5.0 percent and repeated its statement from August that “the prevailing monetary policy stance is consistent with maintain inflation within the objective range of 3 – 6 percent” given the current state of the economy and the outlook.
The Bank of Botswana (BoB), which has maintained the rate since cutting it to the current level in October 2017, also reiterated the outlook for price stability remains positive with inflation falling to 2.9 percent in September from 3.0 percent in August, below the lower bound of the target range.
Subdued domestic demand pressures and a modest rise in foreign prices contribute to the positive outlook, with upside risk from a potential rise in administered prices, commodity prices and taxes.
Downside risks to inflation arise from restrained global growth, technological progress and productivity improvement along with modest wage growth, BoB said.
Botswana’s economy grew by an annual 5.3 percent in the second quarter, up from 4.8 percent in the first quarter, helped by a recovery in mining.
Continued accommodative monetary conditions and higher government spending, as well as stable water and electricity supply, should support activity in the non-mining sectors and overall BoB expects the economy to operate close to, but below full capacity in the medium term, posing no risk to the inflation outlook.
The Bank of Botswana issued the following statement:
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 upside risks emanating from the potential rise in administered prices, commodity prices and government levies and/or taxes beyond current forecasts. However, restrained growth in global economic activity, technological progress and productivity improvement, along with modest wage growth, present downside risks to the outlook.
Real GDP grew by 4.4 percent in the twelve months to June 2018, compared to a slower rate of expansion of 3.2 percent in the year to June 2017. The improvement in performance reflects the recovery in the mining sector, which grew by 5.6 percent compared to a contraction of 10 percent in the previous year. Growth in non-mining GDP moderated to 4.3 percent in June 2018, from 5 percent in the previous year. GDP growth is projected to improve further in the short to medium term, driven largely by performance of the services sectors and recovery in mining activity, in line with positive global economic prospects. Furthermore, the projected accommodative monetary conditions in the domestic economy and increase in government expenditure, as well as relative stability in water and electricity supply, are expected to support economic activity in the non-mining sectors. Overall, it is anticipated that the economy will operate close to, but below full capacity in the medium term, thus posing no risk to the inflation outlook.
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. Consequently, the Monetary Policy Committee decided to retain the Bank Rate at 5 percent.
The last MPC meeting of the year will be held on December 4, 2018, at which dates for next year will be announced. The Monetary Policy Report will be published on the Bank’swebsite on October 29, 2018.”
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