BoB lifts prime rate restriction …leaving timing of cheaper loans to banks

The Bank of Botswana has lifted its restriction on commercial banks’ prime lending rates, betting that improved liquidity and cheaper funding will bring down borrowing costs without requiring banks to cut rates by order.

The Monetary Policy Committee (MPC) voted unanimously on Thursday to end the moratorium while keeping the benchmark Monetary Policy Rate at 5.5 percent. The Bank said it expected greater pricing flexibility to push prime rates down, but gave no indication of when or by how much rates might fall, or what action it would take if banks failed to reduce them.

Asked by The Business Weekly & Review how soon borrowers should expect relief and what would happen if banks failed to pass on lower funding costs, Financial Markets Director and MPC member Baitshenotse Mmopelwa pointed to monitoring, engagement with banks and the Bank’s preference for market-driven pricing.

Without a mandated cut or deadline, the immediate change for households and businesses is greater freedom for banks to set lending rates, rather than a guaranteed reduction in borrowing costs.

Governor Lesego Moseki said the conditions that prompted the restriction had changed. Banks had previously faced tight liquidity and rising deposit costs, pushing market interest rates away from the central bank’s policy rate.

“But over the last six months or so, we have seen an improvement in liquidity conditions,” he said. “We have also seen wholesale deposit rates, which were putting pressure on the market rates, going down.”

Moseki said the improvement underpinned the Bank’s expectation that lifting the restriction would not trigger another round of rate increases.

“So that’s why we say we are expecting banks not to rush to increase rates,” he said, adding that the central bank would continue engaging with the market.

A reversal of last year’s order

The decision reverses a restriction introduced on October 30, 2025, when the Bank raised the policy rate by 160 basis points, from 1.9 percent to 3.5 percent, while directing banks not to increase prime lending rates in response. At the time, the Bank described the move as a recalibration intended to improve monetary policy transmission and support foreign exchange reserves, rather than a tightening of policy.

Mmopelwa said ending the moratorium reflected the Bank’s preference for market-determined rates. Falling funding costs suggested that banks were likely to reduce their rates, she said, urging lenders to consider the wider economic consequences of their pricing decisions.

Why stable prime rates do not mean stable borrowing costs

The Bank’s own research shows why prime lending rates alone may not tell the full story. Its recent Household Indebtedness Survey found that average unsecured lending rates rose from 12.9 percent in 2024 to 18.3 percent in 2025, even though prime rates were held steady.

Credit-card rates climbed from 19.8 percent to 27.9 percent, while mortgage rates increased from 8.5 percent to 10.6 percent.

The survey attributed these increases to wider lending spreads, as banks incorporated higher risk premiums and other pricing adjustments into their rates.

A review of the central bank’s economic and financial data by The Business Weekly & Review shows that commercial bank deposits rose from P110.78 billion in December to P118.29 billion in August, while gross loans fell from P89.99 billion to P87.56 billion.

The figures point to stronger deposit funding alongside a shrinking loan book. However, they do not establish whether the decline in lending reflects weaker demand, tighter lending standards, repayments or write-offs.

Asked when borrowers might see relief, Moseki said liquidity should continue improving over the medium term, supporting stable or lower market rates. He did not specify when customers should expect cheaper loans.

The next MPC meeting is scheduled for December 3, 2026. The Business Weekly & Review will continue monitoring banks’ pricing decisions to determine whether the central bank’s expectation of cheaper credit translates into relief for borrowers.