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BoB maintains 5% Policy rate

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BoB maintains 5% Policy rate
OPTIMISTIC: Pelaelo

Inflation forecast to be within the 3 – 6 percent objective range Water and electricity supply stability expected to support growth of non-mining sectors

The Monetary Policy Committee (MPC) of the Bank of Botswana (BoB) has retained the Policy Rate at 5% and forecast inflation to be within the 3-6% objective range in the medium term.

Bank of Botswana, (Bo) governor, Moses Pelaelo said this at the Media Briefing held at the BoB Boardroom after the MPC meeting held on Tuesday.

Pelaelo noted that inflation increased from 2.9 % in November to 3.2% in December 2017.

Subdued domestic demand pressures and the modest increase in foreign prices contributed to the positive inflation outlook in the medium term.

“This outlook is subject to upside risks emanating from improving global economic activity and the rise in commodity prices beyond current forecasts,” said Pelaelo, adding that substantial unanticipated upward adjustment in administered prices and government levies and/or taxes also present upside risks to the inflation outlook.

The Central Bank Head further noted that Real GDP in Botswana grew by 1.8% in the 12 months to September 2017 compared to a growth of 2.3% in the corresponding period ending in September 2016.

The slower growth reflects a 3.8% increase in non-mining activity, compared to 4.5 percent in the same period.

“Mining output, however, contracted by 12.3%in the 12 months to September 2017 compared to a decline of 11%t in the previous period, while GDP is projected to expand in the short-to-medium term, driven largely by the recovery in mining activity,” said Pelaelo

The projected accommodative monetary conditions in the domestic economy and expansion in government expenditure in the 2018/19 fiscal year, as well as stability in water and electricity supply, are expected to support the growth of the non-mining sectors.

“Overall, the economy is expected to operate close to, but below capacity in the medium term,” he said, adding that Global output growth is estimated at 3.7 percent in 2017 compared to 3.2% in 2016 and is projected at 3.9 % in 2018 and 2019, reflecting expected broad-based improvement in economic performance.

He, however, said protectionist trade policies, the potential build-up of financial vulnerabilities induced by easy financial conditions, geopolitical tensions, political uncertainty and adverse weather conditions could negatively affect the medium-term growth prospects.

Pelaelo highlighted that, regionally, economic expansion in South Africa is projected to remain subdued in 2018 owing to persistent restrained demand and uncertain political environment that weighs on business confidence and investment.