Botswana commercial banks' decision to continue increasing prime lending rates despite an accommodative monetary policy stance might force the Bank of Botswana to invoke regulatory overreach, says governor Cornelius Dekop.
Dekop was speaking at the latest Monetary Policy Committee (MPC) media briefing, where it was announced that the Monetary Policy Rate (MoPR) would again be kept at 1.9%.
The MoPR has been at this level since August 2024 to boost Botswana's economic recovery efforts.
"To throw policy at people and they don't respond in a way that supports the whole economy can only beget even more policy, including regulatory overreach," said Dekop. "Therefore, when we make decisions on policy, businesses and other people should take heed."
It is perhaps the strongest message that the bank has sent out regarding the trend by banks, which in May, hiked prime lending rates by an average of 0.71 percentage points in just one month.
When liberalising prime lending rates in 2023, the bank put out guidelines which stated that lending rate decisions had to reflect market competitiveness, reasonableness and no collusion among banks. So far, the banks are abiding by all those, according to Dekop.
In addition to keeping the MoPR steady, the Bank of Botswana has also taken several measures to assist banks with short-term liquidity, including reducing the primary reserve requirement from 2.5% to 0% and extending the maturity of repos from overnight to seven days and then 30 days.
The Bank of Botswana also raised the threshold for trading of foreign exchange from $1 million to $5 million while also increasing the foreign currency trading margins between itself and commercial banks from +/- 0.125% to +/- 0.5%. The standing credit facility has also been kept at 2.9% to enable banks further access to their liquidity needs at their own discretion.
In the past, Dekop had clarified that although banks increasing prime lending rates might be "morally untoward", they are still in line with prevailing prudential and regulatory requirements.