Bank of Botswana keeps rates unchanged

The Bank of Botswana's Monetary Policy Committee made the decision to maintain the bank rate at 3.75%, emphasizing the need for sustained support to the economy. This decision comes amidst concerns about inflation potentially moving outside the target range of 3 to 6% due to factors such as rising transport and food costs. Ridle Markus, Africa Strategist at ABSA Corporate and Investment Banking, shared insights on how this decision could impact Botswana's economic outlook. Markus expressed surprise at the central bank's belief that inflation could exceed the target range and only return to it by early next year. He noted that uncertainties, such as the current COVID-19 situation and diamond market dynamics, contribute to the cautious approach of maintaining the policy stance. While Markus anticipates a possible policy rate hike in 2022, he believes Botswana's economy, which contracted by nearly 8% last year, will require continued support throughout this year. Contrasting the government's projection of 8.8% economic growth for Botswana, ABSA predicts a more conservative 6.7% growth rate. Markus attributed this variance to the lingering impact of the pandemic on global economies and Botswana's diamond-dependent market, particularly in light of challenges in major diamond markets like India. In neighboring Zambia, inflation eased slightly to 22.7% in April from 22.8% in March, driven largely by food inflation. However, underlying data suggests ongoing inflationary pressures, exacerbated by a weakening currency exchange rate. Markus anticipates inflation in Zambia to peak above 25% in the early third quarter before moderating. This could necessitate tighter monetary policy later in the year. Kenya also saw a slight dip in headline inflation to 5.8% year-on-year in April, with a notable increase in month-on-month inflation. Markus cautioned that despite the apparent stabilization, factors like transport and food prices continue to pose risks to inflation. He believes the central bank of Kenya will likely maintain its current policy stance to support the recovery of the economy, which likely contracted by around 0.5% last year. Overall, the region's economic landscape remains uncertain, with COVID-19 implications and external market dynamics influencing policy decisions. Central banks across Botswana, Zambia, and Kenya are navigating these challenges while aiming to strike a balance between supporting economic recovery and managing inflationary pressures.