The Botswana Central bank has cut interest rate by 25 basis points to 1.90%. The interest rate cut is coming on the back of rising inflation which hit 3.7% in July.
It is also coming amid concern that the economy is operating below capacity in the medium term, as it is failing to generate demand-driven inflationary pressures.
The Central Bank Governor Cornelius Dekop announced the interest rate cut after a meeting of the Monetary policy committee.
Interest rate is used to determine the cost of borrowing and the rate at which the Central bank lends to commercial banks in the country. By lowering the interest rate, the Bank of Botswana is hoping to stimulate the economy and make access to loans cheaper.
With access to cheaper loans, companies can get enough capital to boost production and get the economy running again.
The Central bank is trying to ease monetary policy, fight inflation and revive the economy. Botswana’s economy is battling stunted growth with the IMF cutting its forecast from 3.6% to 1%. This stunted growth is driven by a fall in diamond trading and mining activities in the country.
According to a report by Anglo American, Botswana’s diamond production dropped by 24% in Q1 2024 compared to the same period last year, .
Diamond and mining account for 80% of Botswana’s exports, one-third of the country’s fiscal revenues, and a quarter of the GDP. This is why the economy is feeling the effect of the shortfall in the industry.
With the interest rate cut, the Central bank is projecting that inflation will remain within a target of 3% while businesses start to pick up slowly.
Like many other countries in Africa, Botswana is battling economic uncertainties driven by inflation and rising cost of living. As a result, businesses are struggling to operate and forced to downsize or shut down operations.
