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The Bank of Botswana has kept its Monetary Policy Rate (MoPR) steady at 3.5%, choosing to maintain an accommodative stance even as inflation risks strengthen heading into 2026.
The decision followed the Monetary Policy Committee’s final meeting of the year on December 4, where members assessed a domestic economy still weighed down by weak diamond demand and a global environment marked by geopolitical tension and shifting trade patterns.
While the international economy has shown more resilience than expected in 2025, Botswana has not enjoyed the same momentum. Ongoing weakness in the diamond market continues to strain fiscal and external buffers, leading the MPC to stress the urgent need for stronger implementation of growth-enhancing reforms under the Botswana Economic Transformation Programme and National Development Plan 12. The Bank noted that recent monetary adjustments aimed at easing liquidity and protecting foreign exchange reserves demonstrate the strength of Botswana’s macroeconomic framework and create a more stable environment for attracting investment into the country’s transformation agenda.
Economic activity remains sluggish. Real GDP contracted by 3% in the twelve months to June 2025, a sharper decline than the previous year’s 0.6% contraction, as mining output shrank and non-mining activity remained muted. The Ministry of Finance now expects the economy to shrink by 0.5% in 2025. However, projections for 2026 show a recovery to 3.1% growth, supported by an anticipated rebound in global diamond demand, growing non-diamond mineral production and beneficiation efforts, improved domestic electricity output, and the catalytic effects of reforms under the BETP.
Inflation picked up slightly from 3.7% in September to 3.9% in October, driven in part by higher prices for alcohol, tobacco and transport, following the July 2025 adjustment to the exchange rate parameters. Although inflation remains within the 3 to 6% objective range, the Bank expects upward pressure in the medium term. The latest forecast places average inflation at 2.7% for 2025 and 5.3% for 2026, with a temporary breach of the upper bound now anticipated next year. The MPC highlighted several upside risks, including potential second-round effects from recent increases in water and electricity tariffs, higher domestic fuel costs, persistent logistical bottlenecks, and elevated global commodity prices. International tariff adjustments may also continue to amplify pricing pressures. A softer global outlook or tighter domestic fiscal conditions, however, could push inflation lower than currently projected.
Despite these risks, the MPC believes the economy is operating below full capacity and is therefore not generating demand-driven inflation pressure. This assessment supports the decision to keep monetary policy accommodative in order to bolster activity and reinforce ongoing economic transformation efforts. The Bank also confirmed that its liquidity-supportive measures and foreign-exchange interventions have contributed to a more orderly financial environment.
Alongside holding the MoPR steady, the Bank maintained the prevailing positions of its key policy instruments. The seven-day Bank of Botswana Certificates auctions and all repo operations will continue to be conducted at the MoPR. The Standing Deposit Facility rate remains at 2.5% and the Standing Credit Facility rate at 4.5 percent. The directive preventing commercial banks from increasing their prime lending rates also remains in effect.