Inflation forecast to remain within objective range

Kabelo Adamson
INFLATION FORECASTS: Inflation to remain steady according to FNBB

For the next coming two years, inflation is predicted to remain well within the objective range of three to six percent set by Bank of Botswana.

In 2019, headline inflation averaged 2.8 percent, breaching the central bank’s lower inflation objective.

Listed commercial bank, First National Bank Botswana (FNBB) said in its latest financial results that it expects inflation to average 3.5 percent this year followed by 3.5 percent this year.

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The bank says the downward pressure on inflation continues to emanate from the supply side while the volatile items of food and transport indices remain fairly very stable.

It is anticipated that weak demand prospects for household consumption due to unemployment challenges may also continue to have a negative impact on inflation.

Given the low inflation environment, it is anticipated that BoB will slash the Bank Rate sometime again this year.

Due to the same reasons, the central bank cut the Bank Rate by 25 basis points last year to take the rate to 4.75 percent.

The decision followed rate cuts by Botswana’s trading partners, including South Africa, Namibia and the U.S among others which had cut rates by the same margin as Botswana.

Given the gentle outlook on inflation as well as real exchange rates, FNBB says it believes the central bank will likely effect another bank rate cut probably by 50 basis points to 4.25 percent.

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The bank says the motivation to cut the bank rate is derived from the ongoing moderation of inflationary pressures, along with anticipated cuts in Botswana’s trading partners.

Meanwhile, providing its own assessment of the domestic economy, the bank says it expects it to register an average growth of 3.8 percent in the next three years with the country’s non-mining sector leading growth prospects.

However, FNBB says its growth outlook faces possible downside risks from continued implementation challenges regarding planned efforts to promote local production.

Mounting fiscal pressures from undiversified government revenue streams and increasing operational expenditures, are also believed could limit Botswana’s to meet its infrastructural spending needs.

It is also suggested that employment creation should also be accelerated to achieve broad-based and inclusive growth.

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