Tuesday, December 10, 2013

Botswana cuts rate 50 bps, inflation likely to fall further

    Botswana's central bank cut its bank rate by 50 basis points to 7.50 percent, saying inflation is set to remain within the bank's target range and "the current state of the economy, in which unemployment remains high alongside below-trend economic activity, suggests scope for monetary policy easing to stimulate stronger output growth."
    The Bank of Botswana has now cut rates four times this year for a total reduction of 200 basis points in sync with a decline in inflation since a 2013-high of 7.6 percent in March.
    In October inflation dropped to 4.8 percent from September's 5.0 percent and within the bank's target of 3-6 percent.
    "Weak domestic demand and the forecast benign external price developments contribute to the positive inflation outlook in the medium term, with the likelihood of a further fall in inflation in the short term," the central bank said.
    The bank cautioned, however, that this outlook could be negatively affected by large increases in administered prices and government levies, along with higher-than-forecast international food prices.
    Botswana's Gross Domestic Product expanded by an annual 7.9 percent in the second quarter, up from 3.3 percent in the first quarter but the bank said non-mining GDP is expected to remain below potential in the medium term and generate minimal inflationary pressures.
    The central bank said it expects commercial banks to adjust their own interest rates to reflect its rate cut and in order "to protect the interest of depositors, banks are required to offer and publish a 91-day deposit or equivalent deposit product which pays and interest rate that is at least 350 basis points (3.5 percentage points) below the prevailing bank rate."
    At the current bank rate of 7.5 percent, this 91-day deposit rate should be a minimum of 4 percent, with higher interest rates for longer deposits, the bank said.



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