Interest rates held steady for 12months
Brian Benza | Thursday December 18, 2014 11:51
After a monetary policy committee meeting held yesterday, the BoB’s Head of Communications, Andrew Sesinyi announced that the bank rate would be maintained at 7.5 percent. This means commercial banks will also keep their prime lending rates at 9 percent. This marks a full year of stagnant interest rates as the bank last the yardstick bank rate in December 2013.
In a statement released recently, BoB said the current state of the economy and both the domestic and external economic outlook, as well as the inflation forecast suggest that the monetary policy stance is consistent with maintaining inflation within the bank’s medium term objective range of 3 – 6 percent. “Hence, the Monetary Policy Committee decided to maintain the Bank Rate at 7.5 percent,” read the statement.
Overall Gross Domestic Product (GDP) DP growth is estimated at 5.2 percent in the twelve months to June 2014, thus reflecting the 8.3 percent and 4.7 percent expansion in mining and non-mining output, respectively.
On the other hand, inflation was unchanged at 4.3 percent between October and November 2014. Modest domestic demand pressures and benign foreign price developments contributed to a positive inflation outlook in the medium term.
However, the bank warned that the favourable inflation outlook could be adversely affected by any unanticipated large increase above the current forecast for administered prices, government levies and/or international food prices.
Pulled down by weak demand, the non-mining sector is performing below trend as government restrains expenditure while real personal incomes are weakening. Faced with sluggish economic growth the central bank says that the current monetary policy stance is in support of productive lending to spur growth. “Credit growth is deemed to be supportive of economic activity, with household debt assessed to be at sustainable levels and posing no threat to financial stability.
“Similarly, the commercial banks liquidity situation, as augmented by Bank of Botswana facilities and instruments, is deemed to be sustainable and allowing for sound banking operations in support of economic activity,” added the statement.
Despite stagnant interest rates in the past year, the credit growth to businesses has not increased significantly. This reflects the sluggish growth in the non-mining private sector.
Analysts have fingered the pessimistic operating environment for the private sector characterised by weakening personal real incomes and government spending restraint for the weak credit growth to business.