No adjustments expected anytime soon
Though Bank of Botswana (BoB) Monetary Policy Committee (MPC) maintains the low bank rate environment is sustainable and beneficial, experts argue that the rate, kept at 5 percent for over a year now, has limited benefits.
On Tuesday this week, the MPC meeting, which was the last of the year, maintained the current rate, which has remained stagnant since October 2017 when it was cut from 5.5 percent.
Speaking to the media this week, BoB Governor, Moses Pelaelo, explained there is no reason to adjust the bank rate in either direction.
According to Pelaelo, the current state of the economy and the outlook for both domestic and external economic activity suggests the prevailing stance is consistent with maintaining inflation within the objective range of three to six percent in the medium term.
Speaking to Voice Money following the BoB announcement, local Economist, Moatlhodi Sebabole, revealed this was in line with his expectations.
He further predicted that the rate would remain low throughout 2019 as well.
Sebabole, who works as a Research Manager at FNB Botswana, explained that the rate was brought down in a bid to maintain lower inflation profile.
“With inflation hovering at the lower end of the BoB objective range, it is unlikely the public will see a rise in the bank rate anytime soon,” he reiterated, noting that the whole idea behind keeping a lower bank rate was to stimulate credit growth by making access to it cheaper resulting in consumers purchasing goods and services in high numbers.
However, when asked if the low bank rate has been sustainable over the course of its existence, Sebabole insists it has not.
His argument is that credit has not been growing at a rate one would naturally expect for the lower bank rate as it currently averages 7.7 percent growth compared with an average of 14 percent in past years.
The reason behind this is believed to be that while the central bank keeps the rate low, lenders such as commercial banks have tightened their lending criteria.
“Another factor that signals the low bank rate is not as sustainable as it was is economic growth, which does not correlate with the low bank rate as well as household consumption which remains low,” he said, noting other factors which contribute to low consumption include lack of jobs, layoffs in some sectors of the economy as well as low incomes.
However, despite these uninspiring revelations, the lower bank rate environment is recognised as being beneficial to existing borrowers currently servicing their loan and mortgage facilities.