The central bank says the direction of inflation allows it to adopt an "accommodative monetary policy stance" for this year, which could see interest rate cuts that put money back in borrowers' pockets.
Briefing journalists on Thursday, BoB governor, Moses Pelaelo said from a peak of 14.6% last year, inflation has been declining, reaching 12.4% in December 2022, and 9.3 percent in January.
The reduction had been largely due to the impact of the downward adjustment of domestic fuel prices in December 2022 and January this year. Pelaelo said compared to its December 2022 forecast, the central bank has now revised its outlook for inflation downwards and expects to see an earlier return to the target range than previously forecast.
The projection takes into account the increase in private school fees in January, the resumption of the 14% Value Added Tax, expected increases in Botswana Housing Corporation rentals, and the electricity tariff increase due this April and in April 2024. “The downward revision of inflation reflects a recent reduction in domestic fuel, a downward revision of the forecast for international commodity prices, and a lower magnitude of the downward rate of crawl for the pula,” he said.
The Governor further attributed the revised forecast to the dissipating impact of earlier increases in administered prices, the recent decrease in domestic fuel prices, modest domestic demand, current monetary policy posture, the expected decrease in global inflation, and prospects for international commodity prices. “The projection is nevertheless subject to the upside risk, including the potential increase in international commodity prices beyond current forecast and persistent supply and logistical constraints,” he said.
In Botswana, Pelaelo said the risks for higher inflation include, among others, possible annual price adjustments in administered prices that are not factored in the current projections, entrenched expectations for higher inflation, any realised upward pressure on wages, and any unwarranted overshooting of prices when Value Added Tax returns to 14%. These risks are, however, moderated by the possibility of weak domestic and global economic activity as well as restrained commodity prices.
