The Bank of Botswana said it could not yet conclude that its recalibration of interest rates was complete, signalling that the process launched in October last year may continue even after two increases in the Monetary Policy Rate (MoPR).
Governor Lesego Moseki made the remarks after the Monetary Policy Committee (MPC) left the benchmark rate unchanged at 5.5 percent in June, while Standard Chartered said it expected another 200 basis points of tightening before the recalibration phase ends.
“We can’t categorically say we have done the recalibration because the market evolves and we have to monitor developments in the market and make decisions from time to time,” Moseki told the Business Weekly & Review after the MPC briefing.
The Bank of Botswana began raising the MoPR from 1.9 percent in October 2025 in an effort to narrow the gap between the policy rate and market interest rates, particularly government bond yields, which remain in double digits across much of the curve.
Moseki said the central bank would normally focus on price stability and inflation management, but recent decisions had instead been driven by the need to realign the policy rate with broader market conditions.
“Normally, as a committee, we wouldn’t want to be recalibrating. We would want to be dealing with issues of price stability, managing inflation expectations,” he said.
He said the Bank would act again if funding costs or other market developments caused interest rates to drift away from the policy rate.
“But if, for some reason, like cost of funding and other developments, the market interest rates get de-anchored from the policy rates, we would have to take action to bring that back on track,” he said.
Standard Chartered economist Emmanuel Kwapong said the decision to hold rates in June should be seen as a pause rather than the end of the tightening cycle.
“We see the Bank of Botswana’s decision to keep rates unchanged at its June MPC meeting as a pause, not the end of the hiking cycle,” Kwapong said.
“Because monetary policy operates with a lag, this pause gives the BoB time to assess how earlier tightening is feeding through to the domestic economy.”
Kwapong said the bank expected the MoPR to rise by another 200 basis points to 8.5 percent in the second half of 2026 before the recalibration process is complete, after which any further tightening would be aimed at anchoring inflation expectations and containing second-round price pressures.
He said domestic liquidity conditions had improved, helped partly by better diamond sales, and that the two rate increases since October had narrowed the gap between the policy rate and market rates.
In its June MPC statement, the Bank of Botswana said domestic liquidity had strengthened during the last quarter of 2025 due to higher government funding and spending, improved diamond receipts and adjustments to monetary operations.
It said those developments had moderated funding costs and improved the transmission of monetary policy following the recalibration steps taken in October 2025 and April 2026.
The Bank’s balance sheet points to the same trend. Outstanding Bank of Botswana Certificates (BoBCs), the central bank’s main liquidity-absorbing instrument, rose from about 960 million pula in April 2025 to around 5.28 billion pula by April 2026. Balances held in the Standing Deposit Facility also increased over the same period.
Even so, inflation remains above the Bank’s target range. The MPC expects inflation to average about 9% this year before easing to 5.5% in 2027.
Standard Chartered said that the outlook strengthened the case for further tightening.
“We think a hike in the policy rate to 8.5 percent in the second half of 2026 would help anchor inflation expectations and reduce the risk of second-round effects,” Kwapong said.
