Clearing the fog

Bame Piet
EXPERTS ON STAGE: Breaking down the jargon

BoB turns to simple language

In an effort to communicate more effectively with the general public in simple, easy-to-understand language, this Monday the Bank of Botswana (BoB) gathered journalists in Lobatse to explain the financial system and some of its complicated terms.

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In this move to demystify the financial world and breakdown its specialised terminology, Deputy Governors, Dr Tshokologo Kganetsano, and Dr Kealeboga Masalila brought scribes and economic experts together for an insight into the global financial sector.

The team, comprising of 10 members from the two deputy governors to directors and researchers, explained that whilst inflation target and projections can be maintained at the current 3 – 6 percent, there are situations and events that are beyond BoB’s control.

With war raging between Israel and Hamas, which has claimed over 10, 000 lives, and the two year Russia-Ukraine conflict, as well as effects of climate change, such have potential to disrupt supply chains and increase oil prices. They warned this concoction can have a serious impact on far away economies such as Botswana.

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Dr Kganetsano said it is important for Central Banks or Reserve Banks to be up-to-date with these events and communicate effectively with the public, particularly on how they are likely to affect financial markets.

“Evidence suggests that in recent years, communication has become an important monetary policy rule. This is because the markets and the public have to understand what the central bank is saying. What we say, as the central bank, can influence markets and economic development in one direction or the other, of course, not forgetting people’s lives. This helps in building trust in the institution and its policies. When we say we want to influence inflation expectations, that largely depends on the level of trust that the markets and the rest of economic players have on us as a central bank. Credibility is also key!” Dr Kganetsano said.

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Clearing the fog

The team explained that while inflation is always viewed with skepticism, normal inflation is a good sign of a healthy economy in which products are moving off the factories and shelves to the consumer’s households.

On the contrary, high inflation can be a sign of poor governance and a warning of a dysfunctional central bank, something that can drive the country into both political and economic chaos.

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Whilst Botswana was removed from the Financial Action Task Force’s grey listing status in October 2021, and is due for assessment in four years time, Dr Kganetsano said when a country is grey-listed by the intergovernmental body, it becomes difficult for companies and individuals to execute international financial transactions.

He added that even the government may find it impossible to do any transactions needed to run the country, such as the acquisition of basic necessities including: medicines, drugs, and fulfill international obligations.

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As recently as two weeks ago, the Monetary Policy Committee maintained the Monetary Policy (influencing the demand and supply of money, through controlling either the quantity of money in circulation or its price) at 2.65 percent until their next meeting on December 7th. The Committee has nine members, meets six times a year and there are three vacancies.

Dr Masalila explained that the individuals are a mixture of bank staff and outsiders with expertise in economics, and each of them makes presentations to the meeting before a vote is conducted on whether or not to increase, decrease, or maintain the monetary policy rate.

Factors such as price increase, fuel prices, inflation, and the general performance of the economy are key factors in determining the Monetary Policy Rate.

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