Botswana’s Central Bank holds key rate for second consecutive time

Botswana's Central Bank, also known as the Bank of Botswana, has decided to keep its Monetary Policy Rate steady at 1.9 per cent for the second consecutive time. This decision comes despite the expectations from market analysts for a rate cut to stimulate economic growth. Onalethata Letlole, Sales Manager for FX and Money Markets at Stanbic Bank Botswana, expressed surprise at the central bank's decision, citing economic indicators that typically signal a need for rate cuts. Letlole highlighted a decline in GDP growth and inflation below the target range of 3 to 6 per cent as factors supporting a rate reduction. However, the Bank of Botswana remains cautious, citing subdued credit growth and higher borrowing costs for consumers post-COVID. The recent reduction in the primary reserve requirement aims to ease liquidity constraints and encourage lending to boost economic activity. Market reactions from the bond side reflect concerns around government funding and oversubscribed bond auctions, leading to increased yields. Looking ahead, Letlole expects the central bank to maintain a cautious stance in adjusting rates based on economic performance and inflation levels. The outlook for 2025 suggests a focus on economic growth and diamond sales recovery to support rate decisions. In addition, attention to narrowing the interest rate differential with the South African Reserve Bank is essential to prevent economic imbalances. Despite challenges in the diamond market, government spending remains a key driver of economic growth through infrastructure projects. Letlole emphasizes the significance of local production to reduce reliance on South African imports and stimulate domestic economic activity.