Pula breaks P10/$ barrier
Brian Benza | Wednesday March 18, 2015 18:00
According to exchange rate figures published by the Bank of Botswana (BoB), the Pula continued its fall against the US dollar to reach P10.10 per dollar yesterday. This was the first time that the Pula has broken past the P10 per dollar psychological barrier.
Analysts said the falling of the Pula against the Dollar is primarily due to the Rand’s similar fall against the American currency, which saw the South African currency fall to a 13 year low of R12.38 per dollar last week.
The central bank figures are, however, only indicative and the transactional rate could now rise to as much as P11 per dollar when foreign exchange dealers factor in their commission.
Under the prevailing exchange rate regime, the pula has been gradually falling against the dollar from around P6/$ in 2007 to P8/$ two years back.
The Pula continued fall against the dollar however defies recent adjustments by government to reduce the weight of the Rand in the currency basket, which were meant to shield the local currency from the South African Rand’s volatility.
Under the crawling peg exchange rate regime, the Bank of Botswana (BoB) manages the Pula’s value in a “basket of currencies” assigning weights to each currency. The basket of currencies comprises the South African Rand (ZAR) and the IMF’s Special Drawing Rights (SDR) consisting of the US Dollar, the Euro, the British Pound, and the Japanese Yen.
The Finance ministry recently reduced the weight of the ZAR in the basket to 50 percent from 55 percent while the rate of the crawl has been adjusted from minus 0.16 to zero.
The adjustments to the exchange rate policy were meant to reduce the influence of the ZAR on the local currency.
Monetary authorities last adjusted the exchange rates policy in 2013, when the weight of the Rand in the basket was reduced from 60 percent to 55 percent and that of the US Dollar and (the) other currencies increased while the rate of crawl was also reduced. The depreciation of the local currency against the greenback will work to boost revenues from diamonds, as sales are dollar denominated. “The Pula fall is the result of the weakness of the ZAR against the US Dollar. The recent basket changes were aimed at slowing down the decline in the Pula against the Dollar.
“The Pula depreciation against the Dollar and its rise against the Rand will tend to make Botswana producers less competitive against South African products, but more competitive against US dollar priced products,” said economist Keith Jefferis.
While the Pula has lost against the Dollar, it has risen against the Rand.
0The BoB figures show that the Pula has firmed to as much as 81 thebe per Rand, by yesterday from as much as 90 thebe per Rand two years ago.
Botswana will profit by the firming of the Pula against the Rand as it means fewer Pulas are required to settle the local import bill, which is predominantly Rand-based.
The containing of the import bill also significantly contributes to the lower imported inflation as evidenced by Botswana’s historic Consumer Price Index (CPI) low levels.