At the conclusion of its Monetary Policy Committee (MPC) meeting on 24 August, the Bank of Botswana (BoB) left the policy rate (MoPR) unchanged at 2.65 percent.
This was in line with our expectations. In addition to the dissipating impact of increases in administered prices in 2022, the economy is expected to operate below full capacity in the short term and, therefore, not generate demand-driven inflationary pressures. The decision to keep the MoPR unchanged came as inflation continued to decelerate, with the central bank also expecting relatively low inflation in the near term. In the statement, the MPC stated that it expects inflation for August to print at 1.2 percent y/y, and for inflation to remain below the lower bound of the objective range (3 percent-6 percent) temporarily before reverting back to the objective range in 1Q24.
To recall, inflation fell to 1.5 percent y/y in July from 4.6 percent in June. Given the rate of disinflation and limited upside pressure from the utilities and transport indices (which make up 40.9 percent of the CPI basket), we expect inflation to remain below 3.0 percent y/y through to next year. Our view is that inflation will end the year at 2.4 percent and average 4.9 percent in 2023. With this view in mind, we expect the central bank to maintain an accommodative stance by keeping the MoPR unchanged at 2.65 percent through to 2025.
