Banks are now offering Bank of Botswana (BoB) a knife to slice down interest rates during the end of April Monetary Policy Committee meeting, this comes in the wake of the COVID-19 outbreak which brought lower growth in the global economic activity, hence presenting downside risks to the outlook and bringing anxiety to the local economy.
The upcoming BoB Monetary Policy Committee (MPC) meeting on 30 April 2020 will not come without discussion of the now notorious global pandemic coronavirus-but the main anticipated action is for the central bank to shed the interest rate in an effort to cushion financial stability and maintaining a sound economic environment.
The last time BoB cut the interest rate was in last year’s August MPC meeting, when it was cut by 25 basis points from 5 percent to 4.75 percent. After observing an inflation which remained weak given subdued demand pressures in the economy, Governor Moses Pelaelo took a knife of monetary ruling and sliced the rate by a quarter percentage point to 4.75 percent. That time inflation rate increased from 2.8 percent in June to 2.9 in July and Pelaelo stated that the inflation was still low albeit closer to the lower bound of the Bank’s objective range of 3 to 6 percent.
An interest rate is a benchmark rate used by banks and other financial institutions as a guide to what they pay savers or charge some borrowers. It could happen that a sudden cut in the Bank rate will immediately reduce the mortgage bill of a minority of homeowners. Reduction of Bank rate may allow banks to freely lend money to households and businesses, hence protection of an economy.
After feeling the COVID-19 economic affliction, the central bank of the most influential and the benchmark world economy, the US, Federal Reserve System (The Fed), got fed up and reduced its target interest rate near zero or by 1.00 percent to a range of 0-0.25 percent. According to experts central bankers in five key sub-Saharan African countries will meet on interest rates in the next ten days as the focus turns to them for measures to shore up their economies that are expected to be hit by the novel coronavirus. Recently business media outlet Bloomberg has made a survey from 21 economists, from the figure 11 predict a cut of 50 basis points while 10 expect a reduction of 25 basis points.
One of the leading financial institutes First National Bank Botswana (FNBB) Chief Economist Moatlhodi Sebabole said in an interview with BusinessPost that the bank anticipates that there will be cumulative rate cut of around 75basis points in the second half of 2020 (2h20). He noted that the plausible timing of the cuts should start by 50 basis points which could be by the next Monetary Policy Meeting in April.
“At FNBB, we expect the rate cut to come as early as April due to: Anticipated lower domestic growth environment and downward pressures on the already low inflation projection (oil prices now at multi-decade lows) alongside heightened global risk factors. We expect rate cuts because inflation will remain low and below the central bank’s lower inflation objective of 3.00 percent through to 2h20 – as consumer demand remains muted; and supply side pressures remain subdued with lower oil price outlook,” said Sebabole.
Sebabole who is also Chairperson of government’s National Transformation Strategy Team added that FNBB want the rate to be slashed because of the disruption in the supply value chain which will mostly impact foreign earnings on tourism and mining – as well as impacting manufacturing, construction, logistics sectors. He said the factors mentioned will negatively impact business and consumer confidence; as well as consumption and investment levels. The FNBB chief economist, when explaining the need for a rate, said a wider budget deficit is anticipated as healthcare budget will have to be augmented to deal with testing; preventive; protective and treatment (should a covid-19 case be reported in Botswana) of the virus and potentially some fiscal packages to support a fragile economy.
“The US FED has cut rates to close to 0.00 percent (150bp cut in 1Q20 alone); while for South Africa it is anticipated to go by over 50bp in the next few months. These creates more space for Bank of Botswana to cut rates without substantially reducing Botswana’s interest rate gap with its major trading partners. This is in line with group view for SARB (cuts expected in 1H20 to support ailing economy and rising yields); FED has been bold and reduced the rates to 0.00 percent- 0.25 percent already,” Sebabole told BusinessPost.
Sebabole said from April there should be another shed of interest rates in the 18 June 2020 meeting by 25 percent, while maintaining the rate at 4.00 percent to the second half of 2020. Another leading bank, Absa Botswana expects the bank rate to be cut as soon as next month’s MPC meeting. In an interview with BusinessPost this week, Absa Botswana economist Naledi Madala said the central bank is likely to cut the bank rate by 50basis points in April to support domestic economic activity.
“We believe that headline inflation will likely rise hereon as favourable base effects in transport inflation fade. Though inflation is expected to move higher, it would be increasing from record low levels and is expected to remain within the target band. We forecast a year-end inflation rate of 3.4 percent year on year. This gives the MPC room to stimulate the economy,” said Madala.
Madala said with the Covid-19 outbreak spreading across the global economy and working its way through to the real economy via weakening sentiment, supply-chain disruptions and financial market turmoil, headwinds to growth are picking up. As a small and open country that depends heavily on volatile export segments, Botswana is vulnerable to swings in global economic growth and commodity prices, said Madala.
Former Deputy Governor of BoB Keith Jeffries said the central bank might take a decision to cut interest rates, but is sceptical of the move as an effective policy intervention. Jeffries said monetary policy easing is unlikely to be very effecting, government should rather focus on fiscal expenditure based measures to offset the impact and in particular at how to relieve the pressure on businesses experiencing cash-flow stress.
Despite being hailed and still regarded as a hero who saved many lives through his decision to crash the BF5 fighter Jet around the national stadium on the eve of the 2018 BDF day, the deceased Pilot, Major Clifford Manyuni’s actions were treated as a letdown within the army, especially by his master-Commander of the Air Arm, Major General Innocent Phatshwane.
Manyuni’s master says he was utterly disappointed with his Pilot’s failure to perform “simple basics.”
Manyuni was regarded as a hero through social media for his ‘colourful exploits’, but Phatshwane who recently retired as the Air Arm Commander, revealed to WeekendPost in an exclusive interview that while he appreciated Batswana’s outpouring of emotions and love towards his departed Pilot, he strongly felt let down by the Pilot “because there was nothing wrong with that Fighter Jet and Manyuni did not report any problem either.”
The deceased Pilot, Manyuni was known within the army to be an upwardly mobile aviator and in particular an air power proponent.
“I was hurt and very disappointed because nobody knows why he decided to crash a well-functioning aircraft,” stated Phatshwane – a veteran pilot with over 40 years of experience under the Air Arm unit.
Phatshwane went on to express shock at Manyuni’s flagrant disregard for the rules of the game, “they were in a formation if you recall well and the guiding principle in that set-up is that if you have any problem, you immediately report to the formation team leader and signal a break-away from the formation.
Manyuni disregarded all these basic rules, not even to report to anybody-team members or even the barracks,” revealed Phatshwane when engaged on the much-publicised 2018 incident that took the life of a Rakops-born Pilot of BDF Class 27 of 2003/2004.
Phatshwane quickly dismisses the suggestion that perhaps the Fighter Jet could have been faulty, “the reasons why I am saying I was disappointed is that the aircraft was also in good condition and well-functioning. It was in our best interest to know what could have caused the accident and we launched a wholesale post-accident investigation which revealed that everything in the structure was working perfectly well,” he stated.
Phatshwane continued: “we thoroughly assessed the condition of the engine of the aircraft as well as the safety measures-especially the ejection seat which is the Pilot’s best safety companion under any life-threatening situation. All were perfectly functional.”
In aircrafts, an ejection seat or ejector seat is a system designed to rescue the pilot or other crew of an aircraft in an emergency. The seat is propelled out of the aircraft by an explosive charge or rocket motor, carrying the pilot with it.”
Manyuni knew about all these safety measures and had checked their functionality prior to using the Aircraft as is routine practice, according to Phatshwane. Could Manyuni have been going through emotional distress of some sort? Phatshwane says while he may never really know about that, what he can say is that there are laid out procedures in aviation guiding instances of emotional instability which Manyuni also knew about.
“We don’t allow or condone emotionally or physically unfit Pilots to take charge of an aircraft. If a Pilot feels unfit, he reports and requests to be excused. We will subsequently shift the task to another Pilot. We do this because we know the risks of leaving an unfit pilot to fly an aircraft,” says Phatshwane.
Despite having happened a day before the BDF day, Phatshwane says the BDF day mishap did not really affect the BDF day preparations, although it emotionally distracted Manyuni’s flying formation squad a bit, having seen him break away from the formation to the stone-hearted ground. The team soldiered on and immediately reported back to base for advice and way forward, according to Phatshwane.
Sharing the details of the ordeal and his Pilots’ experiences, Phatshwane said: “they (pilots) were in distress, who wouldn’t? They were especially hurt by the deceased‘s lack of communication. I immediately called a chaplain to attend to their emotional needs.
He came and offered them counselling. But soldiers don’t cry, they immediately accepted that a warrior has been called, wiped off their tears and instantly reported back for duty. I am sure you saw them performing miracles the following day at the BDF day as arranged.”
Despite the matter having attracted wide publicity, the BDF kept the crash details a distance away from the public, a move that Phatshwane felt was not in the best interest of the army and public.
“The incident attracted overwhelming public attention. Not only that, there were some misconceptions attached to the incident and I thought it was upon the BDF to come out and address those for the benefit of the public and army’s reputation,” he said.
One disturbing narrative linked to the incident was that Manyuni heroically wrestled the ‘faulty’ aircraft away from the endangered public to die alone, a narrative which Phatshwane disputes as just people’s imaginations. “Like I said the Aircraft was functioning perfectly,” he responded.
A close family member has hinted that the traumatised Manyuni family, at the time of their son’s tragedy, strongly accused the BDF ‘of killing their son’. Phatshwane admits to this development, emphasising that “Manyuni’s mother was visibly and understandably in inconsolable pain when she uttered those words”.
Phatshwane was the one who had to travel to Rakops through the Directorate of Intelligence Services (DIS) aircraft to deliver the sad news to the family but says he found the family already in the know, through social media. At the time of his death, Manyuni was survived by both parents, two brothers, a sister, fiancée and one child. He was buried in Rakops in an emotionally-charged burial. Like his remains, the BDF fighter jets have been permanently rested.
A matter in which former President Lt Gen Ian Khama had brought before Broadhurst Police Station in Gaborone, requesting the State to charge Directorate on Corruption and Economic Crime (DCEC) lead investigator, Jako Hubona and others with perjury has been committed to Headquarters because it involves “elders.”
Broadhurst Police Station Commander, Obusitswe Lokae, told this publication this week that the case in its nature is high profile so the matter has been allocated to his Officer Commanding No.3 District who then reported to the Divisional Commander who then sort to commit it to Police Headquarters.