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Amid continued surge in inflation over the past months, the Botswana Central bank expects inflation to fall within the bank’s medium term outlook in 2011, the Bank’s Monetary Policy Committee has announced.
“The Committee anticipated that inflation will, in the short‐term, continue to be higher than the objective range due to the impact of the increase in value added tax (VAT), electricity tariffs and fuel prices,” said Chepete Chepete, Bank of Botswana (BoB)’s public relations officer in a communiqué.
“However, it is, therefore, expected that inflation will fall within the 3 – 6 percent objective range in the second half of 2011. It is further projected that, following contraction in 2009, the domestic economy will grow at a moderate rate in the short to medium‐term, with below‐trend output,” he added.
The national year on year inflation has been on an upwards spiral above the central bank’s target.
According to information from the Central Statistic Office (CSO), the national year-on-year inflation for May shot up to 7.8 percent up by 0.7 of a percentage point from 7.1 percent in April.
According to Motswedi Securities, “The rise in inflation was in line with our expectations following the increase in electricity tariffs by an average of 30% on May 1 and fuel prices which were adjusted by an average of 13% towards the end of May.”
BoB report said the general rise in the rate of price changes in April was due to the increase in VAT from 10 percent to 12 percent, while the higher inflation in May was mostly the result of the increase in electricity tariffs.
“Overall, underlying inflation is restrained due to external price pressures and subdued domestic demand. However, the Bank is concerned that expectations of high inflation could be entrenched. It is, therefore, important to emphasise that when the effects of transitory factors are excluded, inflation would fall within the objective range.”
The reserve bank further said overally, the world economy is projected to grow by 3.5 percent in 2010 and 3.3 percent in 2011, after a 2.5 percent decline in 2009.
“As this is still in the context of low levels of capacity utilisation, high rates of unemployment and well‐anchored inflation expectations, it is expected that world inflation will be restrained.”
Meanwhile the bank believes the current state of the economy and the assumptions on both the domestic and external economic outlook, as well as the inflation forecast, suggest that maintaining the prevailing level of interest rates is consistent with the achievement of the Bank’s 3 – 6 percent inflation objective in the medium term, hence the Monetary Policy Committee decided to maintain the Bank Rate at 10 percent.
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