The Bank of Botswana increased the bank rate 25 basis points to 14,50% on Thursday.
This came as the Central Statistics Office announced an increase of 10% in year on year (y/y) inflation at the end of September — the highest rate since April 2003 (10,8%).
The bank warned of further increases in inflation.
In the first five months of 2005, monetary policy aimed at controlling inflation, brought it down from January’s eight percent y/y to 6,2% in May.
However, a June 1 snap devaluation of the Pula by 12% sent inflation up to 7,1% by the end of June. It has been rising steadily since.
”While international inflationary pressures remain relatively benign, inflation in Botswana has continued to rise over the past five months, mainly as a result of the 12% devaluation of the Pula,” the bank said.
It was now above the upper range of the inflation target of four to seven percent y/y and was expected to rise following recent price increases of petrol and telecommunications services.
”The bank is taking a pro-active stance with respect to monetary policy, to signal its commitment to an eventual decline in inflation in the medium-term.
”The bank will continue to closely monitor economic and financial developments and will take such action as may be necessary to meet its policy objectives,” it said in a statement.
The move comes as Botswana accelerates its efforts to attract portfolio and foreign direct investment to further its policy of diversification from an overwhelming economic reliance on diamond revenues — which accounts for 50% of government income.
Stockbrokers’ Botswana chief executive officer Wayne Osterberg said on Thursday the rate hike would hit the market.
”It will take some of the steam out of the market’s recent bull run,” he said.
”Valuations will become more demanding and fixed income investments more attractive.” – Sapa