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Monetary Policy Committee to implement Exchange Rate Policy

Publishing Date : 05 March, 2018


Recent developments in the Republic of South Africa will continue to affect the daily business of Botswana as the rand remains a floating currency. The recent appointment of Cyril Ramaphosa as South African president is expected to be a contributing factor as investors may opt for the South African market with the hope for economic growth.

Although there could be a downside following the decision by Parliament in South Africa to pass a motion tabled by Economic Freedom Fighters (EFF) leader Julius Malema calling for expropriation of land without compensation. This ruling African National Congress (ANC) strongly supported the motion because it was a congress resolution. Indications are that investors are not happy with this move.

Meanwhile the Director of the Research and Financial Stability Department, Dr Tshokologo Kganetsano highlighted at the Monetary Policy Committee (MPC) on Tuesday that they took a decision to implement the exchange rate policy which is in line with the objective of maintaining stable inflation adjusted to trade weighted exchange rate of the Pula.

The decision, he noted came after a 0.26 percent slow rise of the Nominal Effective Exchange Rate (NEER) during 2017 as the domestic inflation was forecast to be close to the lower end of the medium-term inflation objective range and lower than the expected average inflation for trading partner countries.

He further noted that the when the NEER depreciated, the Real Effective Exchange Rate (REER) appreciated by 0.35 percent in the twelve months ending December 2017 which reflected a small positive inflation between Botswana and its trading partners with an estimate 0.26 percent of upward rate crawl that was implemented during 2017.

Kganetsano went on to explain that the monetary policy was conducted against a backdrop of retrained fiscal policy environment as the government expenditure which increased by 3.6 percent in 2017 compared to the registered 2016 growth of 9.7 percent. He has further highlighted that within the recurrent expenditures, the average public sector wages increased by 7.7 percent whereas the private sector wages increased by 2.9 percent both in a period of 9 months ending September 2017.

At a global level, the BoB Director of Research and Financial Stability Department explained that the implementation will be varied in response to the mixed performance across regions and countries. This he notes is because there is need to achieve sustainable economic growth through the facilitation of financial access in a stable environment.

It has been noted by the Minister of Finance and Economic Development, Kenneth Matambo at the just delivered budget speech that price stability is a necessary condition for promoting competitiveness of domestic industries and that it supports broader national objectives of sustainable economic growth and employment creation.

He has noted that domestic annual inflation rate has remained low during 2017, hovering around the lower-end of the Bank of Botswana’s objective range of 3 – 6 percent. During 2017, inflation rate declined from 3.1 percent in January to 2.9 percent in November, before increasing to 3.2 percent in December. Moses Pelaelo, the Governor of Bank of Botswana outlined that the evolution of the Bank’s monetary policy framework in the past two decades, has made it possible to enable the adoption of the crawling band exchange rate.

He further outlined that the framework and public disclosure of the weights of the constituent currencies in the Pula basket as well as the annual rate of crawl has contributed to the framework of the policy. The governor highlighted that the policy was conducted against a backdrop of the fiscal policy which has realized the government expenditure contract by 3.6 percent. The governor has explained that due to a realization of short falls, the plan to establish the financial stability council is at an advanced stage. He explains that the council’s main mandate will be to offer aid during crisis management.



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