The Bank of Botswana (BoB) has reaffirmed its commitment to an accommodative monetary policy stance this year, signaling its readiness to lower interest rates where necessary to stimulate economic activity. This approach is supported by the central bank’s projections that inflation will remain within or below the three to six percent objective range.
Speaking at the launch of the 2024 Monetary Policy Statement, BoB Governor Cornelius Dekop emphasized that inflation expectations remain well-anchored while the economy is expected to operate below capacity in the short term. He noted that these conditions provide room for the bank to maintain policies that encourage borrowing and investment, ultimately fostering economic growth.
The central bank’s three to six percent inflation objective is considered an optimal range for maintaining the purchasing power of households while also supporting sustainable business growth. Since September last year, local inflation has been trending below three percent, largely due to declining fuel prices. BoB forecasts indicate that inflation will remain under three percent until mid-year before rising to just above five percent in the last quarter of 2024.
Last year, BoB reduced interest rates by 50 basis points, citing favorable inflation conditions that allowed for economic stimulus. The accommodative stance aligns with the bank’s broader goal of fostering financial stability while enabling businesses and consumers to access affordable credit.
BoB’s monetary policy stance can typically follow three approaches: an austere stance, where the bank raises interest rates to curb inflation; an accommodative stance, where it lowers rates to stimulate growth; or a neutral stance, where no significant policy changes are made. While BoB has largely maintained an accommodative policy in recent years, it briefly shifted to a tightening stance in 2022 when inflation surged to a 14-year high, prompting a 151-basis-point rate hike.
With inflation currently under control and economic activity requiring support, BoB’s decision to sustain its accommodative stance reflects its commitment to balancing price stability and economic growth in 2025.
