The Bank of Botswana’s (BoB) Monetary Policy Committee (MPC) hiked the policy rate by 51 basis points at a meeting held on 28 April 2022. This follows the implementation of reforms highlighted in the 2022 Monetary Policy Statement (MPS) aimed at improving Botswana’s monetary policy transmission. The reforms included switching the anchor policy rate from the bank rate to the seven-day Bank of Botswana Certificate (BoBC) yield. This yield, now termed the Monetary Policy Rate (MoPR) was increased from 1.14 to 1.65 percent on 28 April 2022.
The decision was made against a backdrop of elevated levels of price growth. Despite inflation retreating slightly from 10.6 percent year on year in February to 10.0 percent year on year in March, risks remain tilted to the upside. These risks include the possibility of international commodity prices rising beyond current forecasts, the persistence of supply and logistical constraints due to lags in production, the economic and price effects of the ongoing Russia-Ukraine war and the possibility of higher local administered prices. The realisation of some, or all, of these risks will work to keep inflation above the central bank’s 6.0 percent upper objective, with the BoB highlighting its expectation of the headline figure reverting to within the 3.0 percent-6.0 percent objective range in 1Q23.
In addition to the hike in the MoPR, the MPC has set the repo and reverse repo rates at the MoPR (1.65 percent), the Standing Deposit Facility (SDF) at 0.65 percent and the Standing Credit Facility rate at 2.65 percent. Further, as stated in the MPS, the BoB sought to allow commercial banks to independently determine their own prime lending rates. In doing so, and in order to facilitate the transition and treatment of pricing of existing financial products and contracts, the BoB prescribed that the maximum prime rate be maintained at 5.25 percent, except in the event of an adjustment in the MoPR. Following the MoPR increase from 1.14 percent to 1.65 percent, the maximum prime lending rate has effectively been capped at 5.76 percent.
The BoB will publish its Monetary Policy Report on 5 May 2022, detailing its outlook for the domestic economy and anticipated inflation profile. The next MPC meeting is scheduled for 16 June 2022.