Bank of Botswana Slashes Rate To 2.4%

The Bank of Botswana's Monetary Policy Committee (MPC) has reduced the Monetary Policy Rate (MoPR) to 2.4% from 2.65% . Inflation fell marginally from 3.2% in September to 3.1% in October 2023, staying within the Bank’s medium-term objective range of 3%– 6%. 

The monetary policy rate is a short-term, often overnight, rate that banks charge one another to borrow funds. When inflation (the rate at which prices for goods and services rise) is above the central bank's targets, the bank raises the policy rate to slow down the economy. This happens because raising the policy rate will increase the cost of borrowing as loans would now come with higher interest rates. According to the economic theory of supply and demand, if borrowing money becomes more expensive, consumer demand will fall, bringing down prices with it along the way. 

According to Bank of Botswana, the country's inflation is forecast at 3.9% for November 2023 and the MPC projects that inflation will remain within the objective range temporarily and revert to within the objective range in the medium term. The bank credits the higher forecast inflation to the base effects associated with the decrease in domestic fuel prices effected in 2022.

In terms of the economy, real gross domestic product (GDP) grew by 5% in the twelve months to June 2023, compared to a growth of 6.7% in the year to June 2022. The slowdown is mainly due to lower growth in mining production.

"The MPC projects the economy to operate below full capacity in the short term and, thus, not generate demand-driven inflationary pressures. Furthermore, inflation is forecast to remain within the objective range in the medium term, averaging 4.9% in 2024 and 4.7% in 2025, the bank said in a statement." Businesses also expect inflation to be within the medium-term objective range; thus, inflation expectations are well anchored. Therefore, the current state of the economy and the outlook for both domestic and external economic activity provide scope to ease monetary policy. Accordingly, the MPC decided to decrease MoPR by 25 basis points to %" it added.

The MPC, chaired by the Governor, is a statutory committee established by the Bank of Botswana (Amendment) Act, 2022. The Committee consists of nine members, four of whom are independent external members.

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