22 August 2024
Own Correspondent
The Monetary Policy Committee (MPC) of the Bank of Botswana today reduced the Monetary Policy Rate (MoPR) by 25 basis points from 2.15 percent to 1.9 percent to stimulate lending.
Since the last MPC meeting, data released by Statistics Botswana shows weaker growth than previously forecast due to factors that include the impact of lower external demand for mining sector production (especially diamonds) and weaker performance of the non-mining sectors.
“This has led to reduced export earnings, especially from diamond sales, which is likely to constrain government spending and its impact on economic activity,” said Cornelius K Dekop, Bank of Botswana(BOB) Governor.
He said, “As a result, the current economic conditions and the outlook for both domestic and external economic activity provide scope to ease monetary policy. Consequently, the MPC decided to reduce the MoPR by 25 basis points to 1.9 percent.”
The MPC observes that inflation could be higher than projected if international commodity prices increase beyond current forecasts, if supply and logistical constraints persist and geo-economic fragmentation escalates.
Officials believe inflation may potentially be heightened by 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 upward risks are offset by likelihood of continued weaker domestic and global economic activity, as well as any decrease in international commodity prices.
The MPC notes that despite the commitment by government to stimulate non- mining sectors through potential growth-enhancing economic transformation reforms, initiatives and supportive macroeconomic policies, the prospects for significant economic growth are still not visible.
Therefore, the MPC projects that the economy will continue to operate below full capacity into the medium term and should not generate demand-driven inflationary pressures.
Thus, inflation is forecast to remain low and within the objective range into the medium term, averaging 3 percent in 2024, 3.2 percent in 2025 and 4.7 percent in 2026. Similarly, businesses also expect inflation to be within the medium-term objective range; thus, inflation expectations are aligned to the inflation objective (well anchored).
Accordingly,
(a) the 7-day Bank of Botswana Certificates auctions, repos and reverse repos will be conducted at the MoPR of 1.9 percent;
(b) the Standing Deposit Facility (SDF) Rate is reduced to 0.9 percent, 100 basis points below the MoPR; and
(c) the Standing Credit Facility (SCF) Rate reduces to 2.9 percent, 100 basis points above the MoPR.
According to officials, the real gross domestic product (GDP) declined by 5.3 percent in the first quarter of 2024, compared to a growth of 5.3 percent in the same quarter in 2023. Meanwhile, economic activity remained restrained in the second quarter of 2024.
According to July 2024 World Economic Outlook Update, global output growth is forecast at 3.2 percent for 2024, slightly lower than 3.3 percent in 2023 increasing marginally to 3.3 percent in 2025.
The International Monetary Fund has revised GDP growth for 2024 downwards to 1 percent, from an earlier estimate of 3.6 percent, partly due to the downturn in the diamond industry
performance, given weak global demand and high inventories.
