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BoB maintains policy rate at 5%

Publishing Date : 25 December, 2017

Author : REARABILWE RAMAPHANE

Bank of Botswana (BOB) Monetary Policy committee convened on Monday and decided to maintain the five percent policy rate- a statement from the central bank states. The Bank explains that the outlook for price stability remained positive as inflation is forecasted to be within the 3–6 percent objective range in the medium term.  


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. The press release also states that subdued domestic demand pressures and the modest increase in foreign prices contributed 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,” reads the statement.


According to the Central Bank, Botswana‘s Gross Domestic Product(GDP) grew by 3.1 percent in the twelve month period reviewed as at end of June 2017 compared to a contraction of 0.7 percent in the corresponding period ending June 2016. This, according to the statement was predominantly because of the 4.9 percent increase in non-mining activity, from 3.3 percent in the same period.  Further highlights suggest that the output in the mining sector decreased by 10.1 percent in the same twelve month period, which is a low contraction compared to the 22.9 % contraction in the 12 month period ended June 2017.


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,” explains the statement.


More light was further shed on global output which BOB said was 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.


The Bank of Botswana also stated that uncertainties 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 statement said.


On inflation, Bank of Botswana reports that the latter decreased from 3 percent in October to 2.9 percent in November 2017 because of various shifts in commodity markets. The Bank underscored latest data from Statistics Botswana, which indicated that inflation fell for some commodity groups, including: food and non-alcoholic beverages which declined from 2.4 to 1.7 percent.


The alcoholic beverages and tobacco contracted from 4.1 to 3.3 percent while inflation on clothing and footwear fell from 2.9 to 2.6 percent. The housing, water, electricity, gas and other fuels registered an inflation contraction from 5.7 to 5.5 percent whereas furnishing, household equipment and routine maintenance declined from 3.1 to 2.7 percent. Figures continue to outline that inflation in health shrunk from 2.1 to 1.9 percent, recreation and culture from 2.1 to 2.0 percent and restaurants and hotels from 3.8 to 3.5 percent.  


The central Bank further explains that inflation increased for some commodity sectors with transport climbing from 1.7 to 2.5 percent in November. Other highlights indicate that Inflation remained unchanged; communication at 1.3 percent, education 4.2 percent and miscellaneous goods and services 2.4 percent. The trimmed mean measure of core inflation and inflation excluding administered prices fell from 2.6 to 2.5 percent and 2.8 to 2.4 percent, respectively.

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