13th June 2024
Sello Motseta
At the meeting held on 13 June 2024, the Monetary Policy Committee (MPC) of the Bank of Botswana reduced the Monetary Policy Rate (MoPR) by 25 basis points from 2.4 percent to 2.15 percent.
Headline inflation was 3.1 percent in April 2024 and is projected to remain within the 3 – 6 percent objective range into the medium term.
“The risks to this inflation trajectory were assessed to be balanced,” said Cornelius Karlens Dekop, Governor of the bank of Botswana.
He said, “The MPC observes that inflation could be higher than projected if international commodity prices increase beyond current forecasts, supply and logistical constraints persist and geo-economic fragmentation escalates.”
Furthermore, inflation may be heightened by possible upward adjustment in prices controlled by government (administered prices) that are not factored in the current projection and any increase in domestic food prices due to the prevailing El Niño induced drought conditions in Southern Africa.
However, these upside risks are offset by the possibility of weaker domestic and global economic activity, as well as any decrease in international commodity prices.
According to officials, real gross domestic product (GDP) grew by 2.7 percent in 2023, compared to 5.5 percent in 2022. The slowdown was attributable to subdued performance across most sectors of the economy, including the mining sector. Meanwhile, economic activity remained restrained in the first half of 2024, due to unfavourable global economic conditions and geopolitical events, as well as domestic structural constraints.
According to the April 2024 World Economic Outlook, global output growth is forecast at 3.2 percent for both 2024 and 2025, the same as in 2023. For Botswana, the Ministry of Finance projects growth to accelerate to 4.2 percent and 5.4 percent in 2024 and 2025, respectively.
The MPC continues to note the potential growth-enhancing economic transformation reforms and supportive macroeconomic policies underpinned by mindset change. These include the stimulus budget announced on 5 February 2024, by the Minister of Finance; supportive monetary and fiscal policies; improvement in water and electricity supply; implementation of the Economic Reform and Transformation Plan and Transitional National Development Plan; infrastructure projects and initiatives announced in the 2024 Budget Speech; and various new and amended legislation.
The economy is expected to operate below full capacity in the short term and, therefore, not generate demand-driven inflationary pressures. Furthermore, inflation is forecast to remain low but within the objective range in the medium term, averaging 3.6 percent in 2024 and 4.5 percent in 2025.
Similarly, businesses also expect inflation to be within the medium-term objective range; thus, inflation expectations are aligned to the inflation objective (well anchored).
“Therefore, the current state of the economy and the outlook for both domestic and external economic activity provide scope to ease monetary policy. Accordingly, the MPC decided to decrease MoPR by 25 basis points to 2.15 percent,” said Dekop.
Consequently, the 7-day Bank of Botswana Certificates auctions, repos and reverse repos will now trade at MoPR of 2.15 percent; the Standing Deposit Facility (SDF) Rate is reduced to 1.15 percent, 100 basis points below the MoPR; and the Standing Credit Facility (SCF) Rate reduces to 3.15 percent, 100 basis points above the MoPR.
