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Botswana maintains rate, inflation seen in target range

Monday, October 17, 2016 5:31
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(Before It's News)

    Botswana's central bank left its Bank Rate steady at 5.5 percent as “the prevailing monetary policy stance is consistent with maintaining inflation within the Bank's medium-term objective range of 3 – 6 percent.”
    Bank Botswana (BB), which cut its rate by 50 basis points in August, added that “subdued domestic demand pressures and benign foreign price developments contribute to the positive inflation outlook in the medium term.”
    Botswana's inflation rate rose slightly to 2.8 percent in September from a historic low of 2.6 percent  in August, with the central bank saying that it inflation outlook is subject to downside risks from sluggish global economic activity and the resultant low commodity prices.
    On the other hand, inflation could also be affected by unexpectedly large rises in administrative prices and government levies along with  higher-than-expected global food and oil prices.
    In its August midterm review, BB forecast that inflation would remain low and stable in line with its objective, with implementation of monetary policy focused on entrenching expectations of low and sustainable inflation through timely responses to price developments.
    Botswana's inflationary pressures are likely to remain restrained by low inflation in its trading partners apart from in South Africa where inflation is seen averaging 6.6 percent this year and remaining above the upper end of the central bank's target range for the rest of this year.
   The relative strength of Botswana's pula against South Africa's rand should help moderate imported inflation, BB said in August.
    BB's exchange rate policy entails a 0.38 percent upward rate of crawl for the nominal effective exchange rate for the rest of this year.
   The pula, which had been depreciating steadily against the U.S. dollar since August 2011, has rebounded since hitting 12 to the dollar on Jan 20 this year. Today the pula was trading at 10.8 to the dollar, up 4.6 percent since the start of 2016.
    Botswana's Gross Domestic Product contracted by 1.3 percent in the second quarter from the first quarter due to lower mining output. On an annual basis, GDP grew 1.6 percent, down from 2.7 percent in the first quarter.


    Bank Botswana issued the following statement:

“The meeting of the Monetary Policy Committee held on October 17, 2016 concluded that the outlook for price stability remains positive, with the forecast pointing to inflation being close to the lower end of the 3 – 6 percent objective range in the medium term.

Global output is projected to grow by 3.1 percent in 2016, from 3.2 percent in 2015, and 3.4 percent in 2017. However, economic performance across the world remains uneven, with challenges relating to economic restructuring in both developed and emerging market economies. In addition, uncertainty arising from the June 2016 decision by the United Kingdom to leave the European Union could further constrain medium-term growth prospects.

In Botswana, real GDP is estimated to have contracted by 0.3 percent in the twelve months to June 2016, compared to growth of 3.1 percent in June 2015, thus reflecting the decline of 23 percent in mining production. Non-mining output increased by 4 percent. Inflation increased from the historically low level of 2.6 percent in August to 2.8 percent in September 2016. Subdued domestic demand pressures and benign foreign price developments contribute to the positive inflation outlook in the medium term. This outlook is subject to downside risks emanating from sluggish global economic activity and the resultant low commodity prices. It could, however, be adversely affected by any unanticipated large increase in administered prices and government levies as well as international oil and food prices beyond current forecasts.

The current state of the economy and both the domestic and external economic outlook, including the inflation forecast, suggest that the prevailing monetary policy stance is consistent with maintaining inflation within the Bank’s medium-term objective range of 3 – 6 percent. In the circumstances, the Monetary Policy Committee decided to maintain the Bank Rate at 5.5 percent.

Monetary policy is also aligned with the need to safeguard financial stability. In this respect, credit growth is considered to be at a sustainable level; it is posing no threat to financial stability.”

    www.CentralBankNews.info

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