Business

Matambo gives Pula room to escalate

Jefferis
 
Jefferis

A statement yesterday indicates that minister Kenneth Matambo had recommended that the weights in the basket of currencies through which the Pula is valued, remain the same, while the rate of crawl is adjusted marginally. The recommendations were part of the annual review of the Pula basket. The Pula’s value is gauged against a basket of currencies containing the US Dollar, Japanese Yen, British Pound and Euro – collectively known as Special Drawing Rights currencies – and the South African Rand. The SDRs and the Rand are assigned weights within the basket and for 2015, these were kept at 50 percent each, or balanced, meaning the Pula was equally exposed to movements from both sides.

The rate of crawl is a nominal adjustment of the Pula’s value against these currencies, with a view to maintaining Real Effective Exchange Rate stability (REER), as gauged by the inflation prevailing in the countries of the basket.

 Prominent economist and Econsult managing director, Keith Jefferis said the adjustment of the rate of crawl indicated an expectation of low inflation in Botswana, which would accommodate a “slight” upward adjustment of the Pula to preserve REER stability.

“The change in the rate of crawl is very small and it’s not going to be noticeable under most circumstances because 0.38 percent over 12 months is a tiny amount,” he said.

“It’s impact will be very small. The issue behind it is probably an assessment that the low rate of inflation in Botswana will continue.

“The rate of crawl is supposed to show the expected differential between Botswana inflation and the average inflation of trading partners and so to some extent, the change to 0.38 percent is mechanical.”