In contrast to regional trends Botswana slashes key rate by 50bp amid soft growth and inflation

By bne IntelliNews August 6, 2015

In contrast to tightening monetary policies accross sub-Saharan Africa, Botswana’s central bank cut on August 6 its benchmark interest rate by 50bp to 6.0%, saying that low domestic demand pressures and subdued foreign price developments contribute to a positive mid-term inflation outlook, while GDP growth has slowed. At the beginning of the year, the Bank of Botswana slashed the rate by 100bp, as it saw scope for easing monetary policy to support economic activity without undermining price stability amid subdued inflation outlook.

An increase in housing rentals boosted Botswana’s headline annual inflation to 3.1% in June from 3.0% in May, but it remained at the lower end of the central bank's 3% to 6% target range. Moreover, the bank fears a downward trend in inflation amid sluggish global economic activity and associated weakness in commodity prices. On the other hand, inflation could rise more-than-expected in case of any unanticipated large increase in administered prices, government levies and/or international food and oil prices, the bank warned.

The Bank of Botswana also noted that the country’s economy, which is highly dependent on diamond mining and exports, expanded by 4.6% in the year to March, sharply slowing from a 7.9% growth in the same period a year earlier. Growth in mining output was 2.5% in the year to March, and growth in the non-mining sector was 5%.

Most sub-Saharn African central banks, including those of South Africa, Nigeria, Ghana, Kenya, and Uganda, have tightened recently their monetary policy, aiming to protect their national currencies against the continuing global strength of the US dollar.

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