Bank of Botswana (BoB) held its first Monetary Policy Committee (MPC) meeting on Tuesday where it was decided that the Bank Rate be maintained at 5 percent. The last reduction of the bank rate was done in October 2017 when it was cut by 50 basis points from 5.5 percent to the current levels which is a historic low. BoB Governor Moses Pelaelo 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. As a result, he said, it was decided that the rate be kept unchanged. The cut in the bank rate was meant to spur economic activity by encouraging lending by financial institutions. Pelaelo said subdued domestic demand pressures and the modest 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,” he said. He added that 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 has reportedly grown by 1.8 percent in the 12 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,” he said. In the 12 months to September 2017, mining out-put contracted by 12.3 percent compared to a decline of 11 percent in the previous period. In the short to medium-term, GDP is projected to expand, driven mainly by the recovery in the mining activity. An economist at FBBB, Moatlhodi Sebabole, recently told this publication that the expectation is that there will be a pick-up in the diamond sales driven by growing demand in the three key markets of the US, China and India and other markets. “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 two support growth of the non-mining sectors,” said Pelaelo. The Governor said in the medium term, the economy is expected to operate close to, but below capacity in the medium-term.