Inflation to remain within 3 to 6% objective range - CNBC Africa

Inflation to remain within 3 to 6% objective range

Financial

by admin 0

The bank’s monetary policy response takes into account the impact of economic activity and associated demand on future price developments.

This is in the context of moderate economic expansion as well as the modest increase in government spending and personal incomes.

“In line with the forward-looking policy framework, the bank’s monetary policy response takes into account the likely impact of economic activity and associated demand on future price developments,” it said.

“In evaluating the monetary policy stance, the bank also considers developments in real interest rates and exchange rates that largely determine monetary conditions in the economy, which ultimately have an impact on domestic demand.”

It stated that, looking ahead, the real exchange rate and real interest rate gaps suggest that real monetary conditions will be relatively tight in the medium term.

(READ MORE: Botswana works to diversify economy)

“The current state of the economy and the projected GDP performance, as well as the positive inflation outlook, suggest that maintaining the existing monetary policy stance is consistent with attainment of the three to six per cent inflation objective in the medium term,” the bank said.

“The current policy takes an appropriate balance between the need for monetary policy to provide some support for domestic economic activity in an environment where the expansionary impact of fiscal policy is limited by restrained government spending.”

Policy would also need to take into account the need to maintain financial stability and the need for positive real interest rates.

“The bank will continue to ensure that absorption of excess liquidity in the banking system through Bank of Botswana Certificates (BoBCs) does not undermine the need to effectively deploy financial resources for productive economic activity,” it said.

“Due to the projected stable and modest inflation differential between Botswana’s inflation objective and the average inflation of trading partner countries, the 0.16 per cent downward crawl of the NEER will be maintained for the remaining period of 2014.”

The bank added that an accommodative monetary policy stance would be consistent with the achievement of the inflation objective in the medium term and that it remains appropriate for supporting a stronger economic expansion.

(READ MORE: Botswana introduces Medium-Term Expenditure Framework)

“Looking ahead, it is anticipated that external price pressures on domestic inflation will be benign, given the projected moderate expansion in world economic activity, stable commodity prices and the dampening impact of capacity underutilisation in major economies,” said the bank.

“The bank remains committed to monitoring economic and financial developments with a view to responding appropriately to ensure price stability and financial stability, without undermining sustainable economic growth.”

Comments