8 January 2025
The Bank of Botswana’s (BoB) Monetary Policy Committee (MPC) is set to convene on Thursday to review the country’s Monetary Policy Rate (MoPR), marking its second decision-making session under Botswana’s new political leadership.
At its previous meeting in November, the MPC maintained the MoPR at 1.9%, following a series of adjustments early in 2024. This included a rate cut in August, the second for the year and the third in nine months, reflecting the central bank’s shift toward a more accommodative monetary policy. BoB Governor Cornelius Dekop cited persistent economic challenges as the reason for the cuts, noting that the economy is expected to operate below full capacity for some time, with inflationary pressures remaining subdued.
Dekop further explained in November that holding the rate steady at 1.9% was a response to the prevailing economic environment and future projections.
“The economy is expected to operate below full capacity in the short term and marginally recover in the medium term, which should not generate demand-driven inflationary pressures,” he said.
Economic indicators continue to highlight Botswana’s financial struggles. Statistics Botswana reported a 0.5% contraction in real Gross Domestic Product (GDP) during the second quarter of 2024, a sharp decline compared to the 3.3% growth recorded in the same period in 2023. The sluggish economic activity extended into the third quarter, exacerbated by declining export revenues, which have put additional pressure on government spending and overall economic performance.
The International Monetary Fund (IMF) echoed these concerns in its October 2024 World Economic Outlook, projecting just 1% growth for Botswana’s economy this year, down from 2.7% in 2023.
The downturn is largely attributed to challenges in the diamond industry, including high inventory levels and weak global demand.
Inflation remains a focal point of the MPC’s deliberations. In November, the committee projected inflation would average 2.8% in 2024, rising to 3.1% in 2025 and 5.3% in 2026. The inflation outlook is influenced by subdued economic conditions and potential declines in global commodity prices.
“The MPC observes that while inflation risks are currently balanced, any significant upward changes in international commodity prices or supply chain disruptions could push inflation higher than forecasted,” Dekop cautioned during the November meeting.
As the MPC prepares to meet, the central bank’s focus will likely remain on supporting growth while keeping inflation within manageable levels. With the economy under pressure from external and domestic challenges, Thursday’s decision will signal how the BoB intends to navigate the complexities of fostering recovery without destabilising inflation or financial markets.
Source: https://www.sundaystandard.info/bank-of-botswana-poised-for-key-rate-decision/
