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Analysts see Botswana inflation subdued through 2015

Publishing Date : 22 December, 2014

Author : NGONIDZASHE DZIMIRI


Botswana inflation will remain subdued through 2015 allowing policy makers to keep interest rates at present levels or lower for an extended period rate, economic analysts have said.


Inflation is expected to remain within the 3-6% range throughout 2015 slowing down to 3,5% by midyear thus falling within the Bank of Botswana target range.

Head of Research, Garry Juma at Motswedi Securities, a local brokerage firm said Inflationary pressure next year will likely be in check, while the Bank Rate is expected to remain at 7,5%. 



Motswedi’s dovish inflation forecast view is supported by the stable fuel prices owing to the remarkably declining oil prices in the international market recently.



“The major causes of inflation on the local economy have largely been, rising food and oil prices on the international market, of which we don’t have much control,” said Juma

“

Against this background, we expect food prices, which have largely been stable on the international market to remain generally unchanged going into 2015.Oil prices are declining and are expected to decline further,” he added.



Juma said the continued appreciation of the Pula against the Rand will also help moderate imported inflation. The Pula has firmed by 1.2 percent against the Rand.



Motswedi forecast headline inflation will stand at 3.8 and rise to 4.4 percent still within the BoB target bands of 3-6 percent.



The 3-6% Inflation forecasts took into account movements in administered prices which are expected to remain benign in the near term. The higher inflation forecast could be attributed to drought in Botswana and across the region.

Nevertheless Juma was quick to say, any large increase in administered prices on the local economy such as electricity, water and also the alcohol levy might exert some inflationary pressures on the economy.


Inflation in 2014 fell within the BoB target range of 3-6%. Despite rise in fuel, commodities and energy prices, inflation remained under check. For December 2014, inflation is expected to average at 4.4%.


Research Manager with Rand Merchant Bank (RMB) Botswana Moathlodi Sebabelo cemented Juma’s view saying inflation in 2015 will average between 4-5%.


“Europe is already  HYPERLINK "http://uk.businessinsider.com/europe-and-deflation-2014-10" hovering right on the edge of deflation, and a further drop in oil prices would shove the eurozone right over the edge. Our major import is oil and the slumping oil prices are a good indicator that inflation remains subdued as well as the deflation in Europe,” said Sebabelo.


By end of last week, crude oil’s benchmark North Sea Brent had fallen below $70 a barrel, its lowest close since May 2010, while U.S. crude fell to a low of $65.84 a barrel. Prices have slumped after OPEC’s November 27 decision not to crimp production, with prices diving by nearly 40 percent over the past five months.


He added that even if the government increases the alcohol levy, the increase won’t put much pressure on the inflation. “If anything the inflation will be pushed at 0.2% rate,” said Sebabelo.


He expects the bank rate to be kept at low rates considering that banks are already facing a liquidity problem. “Definitely there won’t be any hike of bank rate already Bank of Botswana (BoB) is very wary that its exerting pressure on households. If anything there might be a decrease” said Sebabelo.


The analysts anticipate an accommodative monetary policy stance to support the domestic economic recovery.


Meanwhile, the International Monetary Fund (IMF) has encouraged Botswana to continuously look for opportunities to further strengthen the operational aspects of the exchange rate framework and deepen the money and foreign currency markets.


Business Monitor International forecast real GDP growth to be at 4.5% in 2015, a downwards revision from its previous forecast of 5.2%. Falling diamond exports, diminishing base effects and ongoing power issues are expected to constrain real GDP growth.

BMI forecasts Botswana monetary policy to remain accommodative through in 2015. The think tank expects inflation to remain contained in 2015 owing to the pula's appreciation against the rand and slowing domestic economic growth.



“We predict that Botswana's current account surplus will narrow from7.0% in 2014 to 5.9% in 2015. Having declined in 2014 we forecast that both goods imports and exports will return to growth in 2015,” says BMI.



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