The Bank of Botswana announced that it is leaving its benchmark rate unchanged at 9.5 percent for the fifth straight meeting. The African central bank noted that the inflation rate would drop between three and six percent next year.
Following Monday’s meeting by the Bank of Botswana’s Monetary Policy Committee, central bank officials concurred to leave its bank rates at 9.5 percent, according a report released by the bank.
The reason for this move is because they believe demand would be restrained and fuel prices, higher transportation costs and faster inflation from their South African neighbor would allow them to maintain inflation, forecasted to be at about three to six percent in the second half of next year, as its objective in the short-term.
The Gaborone-based bank, led by Governor Linah Mohohlo, last cut the rate by half a percentage point on Dec. 15 – it has reduced its interest rates by 550 basis points between Dec. 2008 and Dec. 2010.
“Domestic inflation rose from 7.8 percent in July 2011, to 8.6 percent in September. The rise in inflation was due, largely, to the increase in fuel prices and public transport fares in August 2011,” the Monetary Policy Committee report said.
“Low demand and the forecast modest external inflationary pressures contribute to the positive inflation outlook in the medium term. However, in the shortterm, inflation is expected to remain above the Bank’s medium term objective range of 3 – 6 percent due to the impact of transient factors.”
Meanwhile, the Botswana economy expanded more than 12 percent in the second quarter. Much of this is due to its mining sector, which produced a surging output of 23.7 percent – the non-mining also rose by 7.4 percent. Botswana is the world’s largest diamond producer.
The Botswana Pula has weakened by 12 percent against the U.S. dollar this year. The pula is pegged against a number of currencies, including the South African rand and the euro.
“The current state of the economy and the assumptions on both the domestic and external economic outlook, as well as the inflation forecast, suggest that maintaining the prevailing level of interest rates is consistent with the achievement of the Bank’s 3 – 6 percent inflation objective in the medium term,” the report added. “Accordingly, the Monetary Policy Committee decided to maintain the Bank Rate at 9.5 percent.”