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BOB projects slight inflation increase

Publishing Date : 29 April, 2019

Author : TSHEPISO GABOTLHOMOLWE

The Director of the Research and Financial Stability Department, Dr Tshokologo Kganetsano has indicated this week at the Monetary Policy Committee (MPC) that in the long term there might be slight increases in the inflation rate which will not be felt in the medium term.


Kganetsano noted that the inflation forecast is mostly in the overall performance influenced by the overall performance of economies. This is despite Bank of Botswana (BoB)’s commitment to keep inflation rate under control after realising few months ago through researches that the Botswana banking sector which has historically been characterised by high rates of profitability was experiencing many declines in its outputs and inputs. Although the central bank continues to highlight that they will strive to maintain the inflation rate, BoB anticipates slight changes in future.


Governor of Bank of Botswana Moses Pelaelo has noted that with the whole increased Government expenditure, they still foresee good outlook in future. Pelaelo noted that the outlook for price stability remains positive as inflation is forecast to remain within the Bank’s 3 to 6 percent objective range in the medium term. Inflation was unchanged at 3.3 percent between February and March 2019.


Pelaelo highlighted that BoB continues to project a possible outlook looking at the financial state of the Global state. He further highlighted that a global output growth is expected to ease to 3.3 percent in 2019, from an estimated expansion of 3.6 percent in 2018.  
Moreover he stated that it has been anticipated that the increase in government spending, as well as implementation of initiatives, such as the doing business reforms, should also be supportive of economic activity. Overall, the economy is projected to operate close to, but below full capacity in the short to medium term, thus posing no upside risk to the inflation outlook.


As economies keep experiencing merits and de-merits, according to the Governor, the experienced moderation in global growth was as a result of various country specific factors which include but not limited to trade tensions could flare up again thereby hampering confidence, investment and growth. “These are what drive our economies, he noted. He has further noted that continuing policy uncertainty, possible slower growth in China, the reception given to Brexit, tightening financial conditions, geopolitical risks and high debt levels. Regionally, the South African Reserve Bank revised its forecasts for GDP growth for 2019 downwards to 1.3 percent from 1.7 percent,” he said.


GDP is projected to increase by 4.2 percent in 2019 where as real GDP grew by 4.5 percent in 2018, compared to a lower expansion of 2.9 percent in 2017.  It has been explained by the bank officials that this was mainly attributable to the continued good performance in non-mining sectors and the recovery in mining output. Mining output expanded by 7.4 percent in 2018, compared to a contraction of 11.1 percent in 2017. Non- mining GDP grew by 4.1 percent in 2018, compared to 4.8 percent in 2017.


The significant influences on domestic economic performance include conducive financing conditions as indicated by accommodative monetary policy and sound financial environment that facilitate policy transmission, intermediation and risk mitigation. 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, in particular, domestic fuel prices and government levies and taxes, beyond current forecasts

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