Tuesday, June 19, 2018

Botswana keeps rate steady on positive inflation outlook

      Botswana's central bank again left its Bank Rate at 5.0 percent, citing a positive outlook for price stability and economic activity that is expected to strengthen but still remain below capacity.
      The Bank of Botswana (BB) has kept its rate steady since cutting it to the current level in October 2017.
      Botswana's inflation rate eased to 3.3 percent in May from 3.4 percent in April and is forecast to remain within the bank's target range of 3 - 6 percent in the medium term based on subdued domestic demand and a modest increase in foreign prices.
      Risks on the upside arise from higher administered prices, government levies or taxes, along with higher-than-expected commodity prices. Downside risks stem from restrained global economic activity, technological progress and productivity improvements, BB said.
      Botswana's economy slowed last year due to declines in copper and nickel production, and lower activity in construction and trade. But the fiscal and external accounts were nearly balanced, the exchange rate was stable and public debt was low and about 19 percent of Gross Domestic Product, according to the International Monetary Fund (IMF) on June 8.
      Botswana's GDP slowed to 2.4 percent growth in 2017 from 2016's 4.3 percent as mining output shrank by 11.2 percent from a decline of 3.5 percent in 2016 while non-mining activity rose by 4.2 percent, down from 5.5 percent growth in 2016.
      But growth in 2018 is expected to pick up from 2017, both BB and the IMF said, supported by a recovery of mining activity, including higher diamond sales, stable supply of water and electricity, and higher government spending.
      In synch with the rise in the U.S. dollar, Botswana's pula has been depreciating in recent months and was trading at 10.45 to the dollar today, down. 5.5 percent this year.

      The Bank of Botswana issued the following statement:

"At the meeting held on June 19, 2018, the Monetary Policy Committee of the Bank of Botswana decided to maintain the Bank Rate at 5 percent. The outlook for price stability remains positive as inflation is forecast to be within the 3 – 6 percent objective range in the medium term. Inflation decreased marginally from 3.4 percent in April to 3.3 percent in May 2018, and was within the objective range.

Subdued domestic demand pressures and the modest increase in foreign prices contribute to the positive inflation outlook in the medium term. This outlook is subject to upside risks emanating from the potential rise in administered prices, commodity prices and government levies and/or taxes beyond current forecasts. However, restrained global economic activity, technological progress and productivity improvement present downside risks to the outlook.

Real GDP in Botswana grew by 2.4 percent in 2017 compared to the faster growth of 4.3 percent in 2016. The slower growth reflects a lower increase of 4.2 percent in non- mining activity, compared to 5.5 percent in the previous year. Mining output, however, contracted significantly by 11.2 percent in 2017 compared to a decline of 3.5 percent in 2016. GDP is projected to expand at a faster rate in the short-to-medium term, driven largely by growth in the services sectors and recovery in mining activity, in line with the positive global economic prospects. Furthermore, the projected accommodative monetary conditions in the domestic economy and expansion in government expenditure, as well as relative stability in water and electricity supply, are expected to support economic activity in the non-mining sectors. Overall, the economy is expected to operate close to, but below full capacity in the medium term.

Global output growth is estimated at 3.8 percent in 2017 and is projected at 3.9 percent in 2018 and 2019, reflecting broad-based improvement in economic performance. However, protectionist trade policies, potential build-up of financial vulnerabilities induced by easy financial conditions, geopolitical tensions and adverse weather could negatively affect the medium-term growth prospects. Regionally, South African GDP contracted by 2.2 percent in the first quarter of 2018. However, growth is still expected to be better in 2018 than in 2017, against the backdrop of higher commodity prices and more positive investor sentiment.

The current state of the economy and the outlook for both domestic and external economic activity suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the objective range of 3 – 6 percent in the medium term. Consequently, the Monetary Policy Committee decided to retain the Bank Rate at 5 percent."



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