With the Bank of Botswana having maintained the Monetary Policy Rate (MoPR) at 2.4 percent due to steady inflation, it remains cognizant of the possible effects of El Niño on crop production in Southern Africa, which may lead to an increase in food prices.
Bank of Botswana Governor, Cornelius Dekop, while announcing the. latest MoPR, explained that headline inflation increased from 3.5 percent in December 2023 to 3.9 percent in January 2024, remaining within the medium-term objective range of 3 – 6 percent.
He explained that the increase in inflation was mainly due to the diminishing impact of the decrease in domestic fuel prices in the corresponding period in 2023 (base effects). Inflation is forecast to remain at 3.9 percent in February 2024. The MPC projects inflation to remain within the objective range into the medium term.
“The MPC observes that inflation could be higher than projected if international commodity prices increase beyond current forecasts, supply and logistical constraints persist and the reversal of global economic integration (geo-economic fragmentation).
Furthermore, inflation may be heightened by possible upward adjustment in prices controlled by government (administered prices) that is not factored in the current projection and any increase in domestic food prices due to the projected El Niño conditions in Southern Africa. However, inflation could be lower than currently anticipated because of the possibility of weaker domestic and global economic activity, as well as any decrease in international commodity prices,” said Dekop on Thursday.
The Monetary Policy Committee (MPC) noted the potential growth-enhancing economic transformation reforms and supportive macroeconomic policies as underpinned by the Mindset Change Initiative.
Dekop told the press that these include, in particular, the stimulus budget announced on February 5, 2024, by Minister of Finance Peggy Serame; supportive monetary and fiscal policies; improvement in water and electricity supply; implementation of the April 2023 – March 2025 Transitional National Development Plan; as well as reforms to further improve the business environment.
“The MPC recognises that 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 within the objective range in the medium term, averaging 4 percent in 2024 and 5 percent in 2025. Businesses also expect inflation to be within the medium-term objective range; thus, inflation expectations are well anchored. Hence, the MPC decided to maintain the MoPR at 2.4 percent.
Accordingly, (a) the seven-day Bank of Botswana Certificates auctions, repos and reverse repos will be conducted at the MoPR of 2.4 percent; (b) the Standing Deposit Facility (SDF) Rate is maintained at 1.4 percent, 100 basis points below the MoPR; and (c) the Standing Credit Facility (SCF) Rate remains at 3.4 percent, 100 basis points above the MoPR,” Dekop added.
The MPC meetings for 2024 are set for 26 April, 13 June, 22 August, 31 October, and 05 December.
