Bank of Botswana this week maintained key lending rate at 5,5 percent for the fourth time this year, arguing the outlook for price stability remains positive as inflation is predicted to be within the 3-6 percent range in the medium term.
This was revealed by the central bank’s Governor Moses Pelaelo at a Press briefing after a closed-door meeting of the Monetary Policy Committee (MPC) which he chairs.
“The outlook for price stability remains positive as inflation is forecast to be low and close to the lower bound of the 3-6 percent objective range in the medium term,” said Pelaelo in a prepared speech.
Last week, Statistics Botswana (SB) announced that inflation has dropped to 3, 4 percent in July 2017 as compared to 3 and 4 percent the previous month. Since taking over as the regulator of commercial banks October last year, Pelaelo has never prevailed on MPC meeting which decides on the adjustment of bank rate, either upwards or downwards.
At 5, 5percent, the bank rate is at a two-decade low. Most commercial banks have in the recent past seen their interest income declining citing lower bank rate regime.
Nonetheless, the central bank is steadfast that the current rate can stimulate the economy. Executives of the bank told the media that the MPC decision to hold bank rate is being done in the best interest of the economy at any point in time. South Africa, the country’s biggest trading partner in the region and some of its peers have cut banking rates in recent times to spur economic growth. In particular, South Africa, the continent’s most advanced economy, last month reduced the banking rate from 7 percent to 6, 75 percent on the backdrop of ‘deteriorating growth’. Will the central bank follow suit? This will not be the case, since BoB does not look into bank rate decisions of other central banks before making its own, said one of the Deputy Governors, Dr. Kealeboga Masalila.
Furthermore, Masalila stated thatsome of the central banks have been forced to cut rates in a bid to tame runaway inflation. He stated that the diamond-rich country has lower bank rates compared to some of the regional economies.
Meanwhile, a local broking firm holds the view that the central bank will cut rates this year. “We cannot rule out another interest rate cut by the Bank of Botswana before the end of this year in light of the low GDP numbers, slower growth in credit extension and inflation well within the Bank of Botswana target range,” said Motswedi Securities recently. The next meeting of the MPC is on the 24th of October 2017 before wrapping up the meetings on the 18th of December.