After slashing the bank rate by 50 basis points from 4.75 percent to 4.25 percent at the end of April, the central bank has at its Monetary Policy Committee (MPC) meeting held on Thursday, decided to keep it at that level.
The bank had in April reduced the rate in order to boost economic activity by making lending a bit cheaper, and this week, Bank of Botswana Governor Moses Pelaelo told local media during a virtual press briefing that they decided to continue with the accommodative monetary policy stance.
Explaining the factors behind the decision, the Governor noted that the Covid-19 pandemic and subsequent containment measures have severely curtailed economic activity globally and at home as production, supply chains, project implementation and provision of goods and services have been halted.
“Similarly, consumption and spending are disrupted, hence domestic demand pressures and foreign prices remain subdued,” said Pelaelo adding that as a result, the overall risks to the inflation outlook are skewed downwards.
He, however, noted that inflation may rise above the current projections if international commodity prices rise beyond the current forecasts and in the event of upward price pressures occasioned by current travel restrictions and lockdowns.
The local economy is expected to suffer badly from the Covid-19 pandemic, with the Ministry of Finance and Economic Development having set a projection of 13.1 percent contraction in 2020 before rebounding by 3.9 percent growth in 2021.
“Even with a recovery in 2021, the contraction in 2020 equates, approximately, to a two-year loss of output,” noted the Governor.
He said the current projections prove how difficult it is to make forward forecasts when there is uncertainty about the duration of constrained economic activity and the pace of economic recovery.
The pandemic, according to Pelaelo the resultant decrease in global demand and disruption in supply chains as well as curtailed economic activity locally, has affected several sources of economic growth for Botswana.
These include key export revenue earners for the country such as minerals, tourism and non-food retail economic activity.