Believes maintaining rate reflects caution
Expect no rate cut
Standard Chartered Bank (StanChart) has adjusted its monetary policy outlook for Botswana, forecasting that the Bank of Botswana (BoB) will retain its current policy rate throughout 2024. This revision contrasts with the bank’s earlier projection, which foresaw a potential 50 basis points reduction.
Emmanuel Kwapong, StanChart’s Economist – Africa attributed this shift to recent budgetary developments.
“We think the Bank of Botswana will remain cautious about interest rate cuts,” Kwapong said. The Monetary Policy Committee (MPC) took the market by surprise in December cutting the policy rate to 2.4%. At its February meeting, it kept it unchanged.
Kwapong suggests that this decision reflects a cautious stance by the central bank, particularly in light of recent budgetary developments. The economist shared concerns regarding government expenditure potentially fueling inflationary pressures. Notably, Kwapong predicts a resurgence in oil prices, surpassing the $90/barrel mark, which could significantly impact the inflation index, particularly given the substantial weighting of transportation.
Figure 1 Inflation to remain within BoB’s objective range. Source: Macrobond, Standard Chartered Research
“On the other hand, we know the fiscal policy intent is expansionary and should support growth.”
The BoB holds the perspective that an expansionary budget is not “necessarily a bad thing”. Governor Cornelius Dekop elaborated on this, emphasising that fiscal policy and monetary policy inherently complement each other in economic management. The aim of the stimulus measures is to stimulate job creation and enhance demand. Dekop acknowledged apprehensions regarding the potential for inflation as a result of increased economic activity. In such a scenario, he said monetary policy would play a pivotal role in mitigating inflationary pressures.
The BoB places its confidence in the smooth execution of government projects without hindrances. The stimulus measures are designed to bolster capacity in order to align with growing demand. BoB anticipates that if these initiatives are effectively executed and implemented, the resulting increase in capacity and supply will adequately meet the demands of the economy without necessarily sparking inflationary pressures.
The government anticipates economic growth to reach 4.2%, a figure consistent with the inflation framework objective of 3-6%. BoB projects inflation to remain within the targeted range over the medium term, with an average of 4% in 2024 and 5% in 2025. Businesses also share the expectation that inflation will remain within the medium-term objective range, indicating well-anchored inflation expectations, as noted by the central bank. This explains why the MPC opted to keep the policy rate unchanged at 2.4%. BoB said the expansionary budget has already been factored into its projections.
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