BoB anticipates subdued inflation

Andrew Maramwidze - BG correspondent
Monday, 10 December 2018
BoB anticipates subdued inflation

Bank of Botswana (BOB) Governor, Moses Pelaelo has allayed fears that inflation will shoot beyond the reserve bank’s three to six percent medium term target. The central bank Chief, this week said the outlook for price stability remains positive as inflation forecast is anticipated to remain within the medium term.

“Inflation increased from 2.9 percent in September to 3.6 percent in October 2018 and is expected to edge up slightly in the short term, mainly driven by the increase in domestic fuel prices,” said Pelaelo. He said subdued domestic demand pressure and the modest increase in foreign prices contribute to the positive inflation outlook in the medium term.

Pelaelo however said the outlook is subject to upside risks emanating from the potential rise in administered prices, in particular, domestic fuel prices and government levies and/or taxes beyond current forecasts. “However, restrained growth in global economic activity, technological progress and productivity improvement, along with modest wage growth, present downside risks to the outlook,” he said.

On gross domestic product (GDP), Pelaelo said growth is projected to improve in the short to medium term, driven largely by performance of the services sector and recovery in the mining sector.He said the projected accommodative monetary conditions in the domestic economy and increase in government expenditure are expected to support growth of economic activity in the non-mining sectors. 

“Overall, it is anticipated that the economy will operate close to, but below full capacity in the medium term, thus posing no upside risk to the inflation outlook.” The bank’s previous report indicates that real GDP grew by 4.4 percent in the twelve months to June 2018, compared to a lower expansion of 3.2 percent in the year to June 2017.

“The improvement in performance reflects the recovery in the mining sector, which grew by 5.6 percent compared to a contraction of 10 percent in the previous year. Growth in non-mining GDP moderated to 4.3 percent in the year to June 2018, from 5 percent in 2017,” said Pelaelo. Meanwhile, Pelaelo said the Monetary Policy Committee (MPC) has decided to retain the country’s bank rate at five percent.

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