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BoB not rocking monetary policy boat

Bank of Botswana (BoB) Governor Moses Pelaelo said there is still a scope for shedding of the Bank Rate or tightening of it. He said this on Thursday after the central bank decided to maintain the Bank Rate from last month’s 4.25 percent, elaborating a continuance with “an accommodative monetary policy stance.”

This is against the expectations of many monetary economists and commercial banks who are of the view that the previous Monetary Policy Committee (MPC) cut was marginal. According to its Botswana MPC review, First National Bank or Rand Merchant Bank researchers anticipate accumulative 75bp cut in the Bank Rate in 2H20, which would take the rate to a historical low of 3.5 percent.

The recent decision of the MPC made on Thursday kick started 2H20. The remaining MPC meetings for 2020 are scheduled as follows: August 20, 2020, October 8, 2020 and December 3, 2020, meaning for the last half of this year there are only three decisions left for the BoB Committee.

Before BoB cut the Bank Rate by 50 basis points (bps), from 4.75 percent to 4.25 percent in April, First National Bank chief economist Moatlhodi Sebabole, who is part of the Rand Merchant Bank team that had made an accurate prediction in an interview with BusinessPost that for April, and the cut would be 50 bps. He further told this publication that he expects the next cut after April to be by at least 25 bps.

As indicated in a previous interview with this publication, Sebabole expected the Bank Rate to be at 4.00 percent in this second half of 2020. But the MPC on Thursday through virtual communication announced that they will maintain the Rate at 4.25 percent.

“While we anticipated rates to go down by between 25bp and 50bp at today’s meeting, the Bank of Botswana’s (BoB) MPC decided to leave rates unchanged at 4.25 percent today (Thursday). BoB reiterated that with the advent of Covid-19, domestic inflation will be restrained due to slow growth in personal incomes as well as low foreign inflation which provides scope for rates to remain accommodative.

The economy will also undergo significant growth pressures due to the anticipated recession and the impact of the pandemic on economic activity,” said Rand Merchant Bank on Thursday afternoon just after the MPC decision.

When doing research, just after the April MPC 50 bps cut, the commercial bank researchers went deep and even expected a 100 bps. They envisaged that a cut to 3.75 percent was much needed going deeper from their initial projected 4.00 percent before April.

However, the Bank this week held a different view, further saying: “The MPC, however, recognized that the short-term adverse developments in the domestic economy occur against a potentially supportive environment including accommodative monetary conditions; improvements in the provision of utilities; reforms to further improve the business environment; concerted efforts by government to mitigate the impact of COVID-19; and a prospective economic recovery programme. These would generally be positive for economic activity in the medium term.”

But this did not satisfy Rand Merchant Bank experts who explained that unlike in the 2009 economic recession when the economy underwent a current and capital account crisis, the effects of Covid-19 are expected to be broad-based. Covid-19 is expected to impact both the supply-push and demand-pull pressures.

According to the researchers, the limited economic activity posits significant downward pressures to headline inflation, which the commercial bank now estimate at an annual average of 2.20% (2.80% in 2019).

“The significant downward pressures to headline inflation will emanate from lower oil prices expected for the rest of the year as there has already been two reductions to fuel prices in the past three months,” said the researchers.

The commercial bank’s researchers also anticipate limited imported inflation from South Africa (which accounts for over 60 percent of imports) due to moderation of inflation in SA as well as a weaker Rand — which will benefit Pula imports.

“Risks to the upside, though minimal, will be due to increases in administered prices, including the recent tariff hikes on electricity. We reiterate that even with low headline inflation, consumers’ purchasing power remains low due to broad-based unemployment challenges and negative medium term real wage adjustments,” said the researchers.

Pelaelo on the other hand read that inflation eased from 2.5 percent in April to 2.4 percent in May 2020, remaining below the lower bound of the Bank’s objective range of 3 – 6 percent. He further said inflation is forecast to revert within the objective range in the third quarter of 2021, which is a significant downward revision from the April 2020 forecast.

The BoB Governor explained to the media that the downward revision from the April forecast should be credited to the decrease in fuel prices. He said this also saw a decrease in food prices, hence the downward revision.

Rand Merchant Bank experts’ outlook which supported deeper cut of the Bank Rate further said lower inflation and growth support the case for a big shed of the Rate in 2020.

Our GDP growth forecast for Botswana remains at -10.5% y/y in 2020 (4.5% in 2021), with risks to the downside due to the uncertain economic environment, said the researchers.

According to the Rand Merchant Bank researchers, if the current economic situation persists, then growth could dip to -16.1% y/y (bear scenario).

The commercial bank researcher said the Ministry of Finance and Economic Development estimates growth at -13.0% y/y, which is an indication that the economy is anticipated to perform worse than during the global financial crises of 2008/9 where it contracted 7.7% y/y.

“In our view, it will take about two to three years for the economy to regain its 2019 value (in Pula terms), unless an extraordinary stimulus package is put forth, prioritising jobs and productivity. These factors, we believe, provide the BoB with room to cut rates further without altering real interest rate differentials from their historic averages.

We anticipate a cumulative 75bp cut in the Bank Rate in 2H20, which would take the rate to a historical low of 3.5%,” said the Rand Merchant Bank research released end of this week.

The commercial bank researchers said the recessionary growth pattern that they anticipate in 2020, coupled with stubbornly low inflation dynamics and subdued demand and output prospects, all point to our fundamental view that the Bank Rate will trend lower in the short to medium term.

“We maintain our view that the Bank Rate will trend lower to 3.50% in 2020 – thus the timing for the cut remains a waiting game,” they said.

Business

China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Business

Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Business

Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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