BoB keeps bank rate unchanged at 3.75%

BoB keeps bank rate unchanged at 3.75%

The Monetary Policy Committee (MPC) of the Bank of Botswana (BoB) decided to maintain the Bank Rate at 3.75 percent following a marginal increase of inflation from 2.2 percent in December 2020 to 2.3 percent in January 2021.

The central bank says inflation is forecast to revert within the objective range of 3-6 percent in the second quarter of 2021 and subsequently move closer to the upper bound partly due to transitory factors.

Overall, BoB Governor Moses Pelaelo says risks to the inflation outlook are assessed to be balanced. “Upside risks relate to the potential increase in international commodity prices beyond current forecasts, aggressive action by governments and major central banks to bolster demand, as well as the anticipated supply constraints due to travel restrictions and lockdowns, though abating,” he says adding that domestically, accelerated implementation of the Economic Recovery and Transformation Plan (ERTP) and any additional increase in government levies/taxes could lead to higher inflation.

“These risks are moderated by weak domestic and global economic activity, which could be exacerbated by periodic lockdowns and other forms of restrictions due to emergence of new COVID-19 variants, and the possible decline in international commodity prices.” Furthermore, Pelaelo warns that should there be implementation capacity constraints, this could hinder the effectiveness of policy stimulus and ERTP initiatives, thus resulting in lower inflation.

Real Gross Domestic Product (GDP) contracted by 6.4 percent in the twelve months to September 2020, compared to a growth of 3.7 percent in the corresponding period in 2019. The decline in output is attributable to the contraction in output of both mining and non-mining sectors, resulting from the associated COVID-19 pandemic containment measures. Mining output fell by 21.9 percent in the twelve months to September 2020 compared to a growth of 1.4 percent in the corresponding period in 2019, mainly due to weaker performance of the diamond, copper, coal, soda ash and other mining subsectors.

Non-mining GDP contracted by 4.7 percent compared to a growth of 3.9 percent in the same period last year. The decline in non-mining GDP was mainly due to lower output of the trade, hotels and restaurants, finance and business services, transport and communications, social and personal services, construction and manufacturing sectors. In addition, the deceleration in growth of general government contributed to the overall decline in the non-mining output.