Botswana’s central bank kept its benchmark Bank Rate at 5.0 percent, citing a positive outlook for inflation that is forecast to remain within its 3-6 percent target range in the medium term, and an economy that is operating close to, but below capacity.
The Bank of Botswana (BOB), which has maintained its rate since cutting it to the current level in October 2017, said subdued domestic demand and a modest increase in foreign prices contributed to the positive outlook for inflation while upside risks stem from higher commodity prices and any unanticipated upward rise in administered prices, government levies and taxes.
Botswana’s inflation rate rose to 3.2 percent in December 2017 from 2.9 percent in November while Gross Domestic Product grew by 1.8 percent in the 12 months to September, down from 2.3 percent in the same 2016 period.
Slower growth reflects a slowdown in non-mining activity and a 12.3 percent contraction in mining output in the 12 months to September 2017 compared with a 11 percent fall in 2016.
“GDP is projected to expand in the short-to-medium term, driven largely by the recover in mining activity,” BOB said.
Botswana’s pula has been trending higher since January 2016 and was trading at 9.6 to the U.S. dollar today, up 2.8 percent this year.
The Bank of Botswana issued the following statement:
Subdued domestic demand pressures and the modest increase in foreign prices contribute to the positive inflation outlook in the medium term. This outlook is subject to upside risks emanating from improving global economic activity and the rise in commodity prices beyond current forecasts. Furthermore, any substantial unanticipated upward adjustment in administered prices and government levies and/or taxes also present upside risks to the inflation outlook.
Real GDP in Botswana grew by 1.8 percent in the twelve months to September 2017 compared to a growth of 2.3 percent in the corresponding period ending in September 2016. The slower growth reflects a 3.8 percent increase in non-mining activity, compared to 4.5 percent in the same period. Mining output, however, contracted by 12.3 percent in the twelve months to September 2017 compared to a decline of 11 percent in the previous period. GDP is projected to expand in the short-to-medium term, driven largely by the recovery in mining activity.
Furthermore, the projected accommodative monetary conditions in the domestic economy and expansion in government expenditure in the 2018/19 fiscal year, as well as stability in water and electricity supply, are expected to support growth of the non-mining sectors.
Overall, the economy is expected to operate close to, but below capacity in the medium term.
The current state of the economy and the outlook for both domestic and external economic activity suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the objective range of 3 – 6 percent in the medium term. Therefore, the Monetary Policy Committee decided to retain the Bank Rate at 5 percent.”
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