Gaborone — Bank of Botswana has reduced Bank rate by 25 basis points from 5 per cent to 4.75 per cent.
Delivering BoB’s Monetary Policy Committee (MPC) report, the bank governor, Mr Moses Pelaelo indicated that the current state of the economy and the outlook for both domestic and external economic activity provide scope for easing monetary policy to support economic activity.
“Improving total factor productivity remains key in promoting sustainable and inclusive economic growth with inflation low and stable,” he said.
He therefore pleaded with commercial banks to make necessary interests rate adjustments with immediate effect to reflect the policy decisions.
Further, Mr Pelaelo stated that inflation rate increased from 2.8 per cent in June to 2.9 in July, it was still below, but closer to the lower bound of the Bank’s objective range of 3 to 6 per cent.
He said this was despite the fact that inflation was forecast to revert within the Bank’s 3 to 6 per cent objective range in the first quarter of 2020.
“Subdued domestic demand pressures and the modest increase in foreign prices contributes to the positive inflation outlook in the medium term and this outlook is subject to upside risks emanating from the potential rise in administered prices and government levies and taxes beyond current forecasts,” he said.
He however cautioned that modest growth in global economic activities or technological progress and productivity improvement presented downside risks to the outlook.
Mr Pelaelo stated that the real Gross Domestic Product grew by 4.4 per cent in 12 months to March 2019, compared to a lower expansion of 3.8 per cent in the corresponding period in 2018, saying this was mainly attributable to the continued good performance of the non-mining sectors and recovery in the mining output.
Mining output, he said, expanded by 5.3 per cent in the year to March 2019, compared to a contraction of 0.3 per cent in the corresponding period in 2018 while non-mining GDP grew by 4.3 per cent in the year to March 2019, the same growth rate as in the corresponding period in the previous year.
He highlighted that GDP was projected to increase by 4.2 per cent and 4.8 per cent in 2019 and 2020 respectively, with significant influences on domestic economic performance.
The projected increase, he said, included conducive financial conditions as indicated by accommodative monetary policy and sound financial environment that facilitated policy transmission, intermediation and risk mitigation.
Moreover, Mr Pelaelo echoed an anticipated increase in government spending, as well as the implementation of initiatives such as the doing business reforms, highlighting that they should also be supportive of economic activities.
Overall, he said the economy was projected to operate close to, but below full capacity in the short to medium term, thus posing no upside risk to the inflation outlook
Global output, Mr Pelaelo said was expected to ease to 3.2 per cent in 2019 from estimated expansion of 3.6 per cent in 2018.
<i>Source : BOPA</i>