BoB cuts rate to spur weak credit growth
Brian Benza | Friday August 7, 2015 16:26
With credit growth currently at a four-year low due, in part, to tight liquidity in the market, a Monetary Policy Committee (MPC) meeting held yesterday decided to reduce the cost of borrowing to drive spending by both businesses and households.
“The current state of the economy as well as the domestic and external economic outlook, including the inflation forecast, suggest that easing monetary policy is a step in the right direction; it would be consistent with maintaining inflation within the Bank’s medium-term objective range of 3 – 6 percent.
“Accordingly, the Monetary Policy Committee decided to reduce the Bank Rate by half a percent to 6 percent,” stated BoB.
The rate cut will come as a boon for borrowers as commercial banks are expected to reduce their lending rates by a similar margin, taking the prime-lending rate down to eight percent. Interest rates have not sunk to such low levels since August 1990 when the bank rate was raised from 6.5 percent to 8.5 percent.
Despite interest rates being at a 26 year low of 6.5 percent, annualised credit growth slowed from 12.4 percent in January 2015 to 9.8 percent in April, the lowest in four years. The decline was mostly driven by a slowdown in the growth of credit to firms, which fell from 18.9 percent in January 2015 to 11.8 percent in April.
The Finance Ministry expects the national economy to grow by a slower rate of 4.9 percent this year, from 5.2 in 2014 due to lower government spending, weak international markets as well as falling domestics demand.
Figures released by Statistics Botswana recently show that Real Gross Domestic Product (GDP) growth is estimated at 4.6 percent in the twelve months to March 2015 compared to 7.9 percent in the corresponding period in 2014.
At industry level, the increase was attributed to Trade, Hotels & Restaurants, General Government and Finance and Business services sectors, which increased by 6.1, 5.6 and 5.4 percent respectively.
Mining increased by 1.2 percent compared to 10.0 percent realised in the first quarter of 2014.
The slower growth in mining was attributed to a decline in diamond production by 2.5 percent compared to 33.9 percent registered in the same quarter of 2014.
On the other hand, copper and nickel production increased by 14.9 percent on a year-on-year basis and decreased by 15.3 percent on quarter-on-quarter comparison. The decline was mainly attributed to the closure of Discovery Metals Limited (Boseto) copper mine in March 2015.