Botswana's central bank cut its Bank Rate by 50 basis points to 9.0 percent, its first rate cut since December 2010, to reignite economic growth while the medium-term inflation outlook is positive.
The Bank of Botswana (BoB) said economic growth is below potential and unemployment is high and forecasts suggest that a more accommodative policy stance would be consistent with the achievement of the bank's 3-6 percent medium-term inflation objective.
In the short term, however, the BoB said inflation is expected to remain above the bank's target range due to transitory factors.
But weak domestic demand and forecast low external inflationary pressures means the "underlying trend is forecast to be downwards, and this means that inflation is anticipated to converge to the medium-term objective range in the second half of 2013," the BoB said.
In March Botswana's inflation rate rose to 7.6 percent, up from 7.5 percent in February, but down from 8.0 percent in March 2012.
The BoB said domestic output grew by 3.7 percent in the 12 months to December 2012 with the non-mining sectors slowing to growth of 5.8 percent from 7.8 percent in 2011, while the mining sector contracted by 8.1 percent.
The central bank expects that non-mining expansion will remain below potential in the medium term and therefore exert minimal inflationary pressure. In addition, the impact of demand on economic activity is forecast to be modest, reflecting trends in government spending and personal income.