Bank of Botswana on Thursday, kick-started its overhauled monetary policy signaling mechanism with an increase in interest rate, a 51 percent basis point on the Monetary Policy Rate ( MoPR) – the new anchor announced in February.
This increase jumps the prevailing MoPR from 1.14 percent yield on the 7-day Bank of Botswana Certificate to 1.65 percent, a move that the central bank says will manage liquidity and tame inflation which has been on an upward trajectory until last month. Bank of Botswana Governor Moses Pelaelo explained that on the 51 percent basis point, 1 pbs was just a technical adjustment, the increase in effect is actually 50 basis points, half a percent.
“This is obviously an increase in the cost of credit, we are signaling the direction in which interests rates must take and our expectation is that banks will take the same direction, so if the banks increase prime lending rate on a variable rate credit arrangement that means there will be an increase in the cost of the credit or a loan, but if the credit contact was on a fixed rate, nothing will change for the consumer “. He said
The MoPR is the new policy signaling rate which replaced the Bank Rate, the migration from the latter was announced in February as an overhaul move adopted to revolutionarise the country’s monetary policy, taking effect from Thursday 28 April 2022. The reforms are aimed at improving and changing the monetary policy with three key objectives. First, and foremost, to enhance policy transmission and the desired market response to monetary policy and monetary operations adjustments.
Second, to designate an anchor policy rate capable of affecting commercial banks’ liquidity management decisions, and thus providing a direct link to policy changes. Lastly, to achieve an interest rate structure that influence commercial bank decisions and market responses, fostering an active interbank market and effectively reflecting the policy stance and desired impact of monetary operations.
Deliberating on the decision to increase the prevailing MoPR, Bank of Botswana top brass said the idea is to manage liquidity in the system and tame inflation. With the global supply chain disruptions in the wake of Russian – Ukraine conflict the Bank of Botswana has now revised its inflation expectations, projecting that under prevailing circumstances, inflation will only revert to object range of 3 – 6 percent in the first quarter of 2023 against the initial projection of second quarter 2022.
“With MoPR and the subsequent increase announced today, we wanted to enhance the potency of the policy signaling rate, that is the policy anchor rate , so that we make sure that what we say needs to happen, actually happens, with the bank rate, because of structural access liquidity in the system commercial banks were not borrowing from us, so when we change and now target and use the monetary policy rate it will better influence and impact the interest rate structure of the economy” Governor Pelaelo explained.
He said effectiveness of the monetary policy signaling rate will be enhanced tremendously ”the money that the banks are going to bring to us, we will pay them a rate that they now know is going to be 1.65 percent, they can then know how much they should pay for the deposit, they can now anchor the products that they will be selling, such as loans”.
Pelaelo reiterated that better policy effectiveness in influencing monetary conditions in the economy is what the reforms are intended to do. “This is about liquidity management, how banks and us from policy side are doing to manage liquidity, clearly now that we are pricing on the liability side we think that we stand a better chance to influence monetary policy conditions ” he said.
Deputy Governor, Dr Tshokologo Kganetsano added, “The ultimate goal is price stability, if we can control liquidity, we will be able to better control inflation, and the rate at which prices are increasing will slow down, so ultimately the consumer will benefit from contained price of cooking oil for instance”
Governor Pelaelo said the changes will contribute to macroeconomic stability. “We want to tame this inflation, and this reforms are going to work, next month, inflation is going to go down to a single digit number, but obviously not back to the objective range, that will only be realised in the first quarter of 2022, subject to current economic circumstances remaining as projected ” he said.
Inflation declined from 10.6 percent in February 2022 to 10 percent in March 2022, remaining above the Bank’s medium-term objective range of 3 – 6 percent. BoB explained that the latest decline in inflation mainly reflects the base effects associated with the upward adjustment in domestic fuel prices in the corresponding period in 2021.
The current high level of inflation is mainly driven by supply-side factors which contribute about 7 percentage points to the prevailing inflation (March 2022). However, the Central Bank’s Monetary Policy Committee projects that inflation will, in the short term, remain above the objective range but continue to trend downward in 2022 and to revert to within the objective range from the first quarter of 2023.
This is mainly on account of the dissipating impact of the upward adjustment in the value added tax (VAT) and administered prices from the inflation calculation. The bank observed that there is a significant risk that inflation could remain elevated due to factors that include: the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production; the economic and price effects of the ongoing Russia-Ukraine conflict; uncertain COVID-19 profile; domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions (shortages in supplies leading to price increases); as well as second-round effects of the recent increases in administered prices and inflation expectations that could lead to generalised higher price adjustments.
Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation. These risks are, however, moderated by the possibility of weaker than anticipated domestic and global economic activity due to geo-political tensions and possible periodic lockdowns and other forms of restrictions in response to the emergence of new COVID-19 variants, with a likely further dampening effect on economic activity.
Lower international commodity prices than currently projected could also result in lower inflation, as would capacity constraints in implementing the Economic Recovery and Transformation Plan (ERTP) initiatives.
In today’s digital age, banking is no longer just about visiting a branch during business hours. It’s about putting you, the customer, in the driver’s seat of your financial journey. But what exactly is self-service banking, and how do you stand to benefit from it as a customer?
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This shift towards self-service banking was catalyzed by various factors but it became easily accessible and accepted during the COVID-19 pandemic. People of all ages found themselves turning to digital channels out of necessity, and they discovered the freedom and flexibility it offers.
Anyone with a bank account and access to the internet or a smartphone can now bank anywhere and anytime. Whether you’re a tech-savvy millennial or someone who’s less comfortable with technology, you as the customer have the opportunity to manage your finances independently through online banking portal or downloading your bank’s mobile app. These platforms are designed to be user-friendly, with features like biometric authentication to ensure your transactions are secure.
Speaking of security, you might wonder how safe self-service banking really is. Banks invest heavily in encryption and other security measures to protect your information. In addition to that, features like real-time fraud detection and AI-powered risk management add an extra layer of protection.
Now, you might be thinking, “What’s the catch? Does self-service banking come with a cost?” The good news is that for the most part, it’s free. Banks offer these digital services as part of their commitment to customer satisfaction. However, some transactions, like wire transfers or expedited bill payments, may incur a small service fee.
At Bank Gaborone, our electronic channels offer a plethora of services around the clock to cater to your banking requirements. This includes our Mobile App, which doesn’t require data access for Orange and Mascom users. We also have e-Pula Internet Banking portal, available at https://www.bankgaborone.co.bw as well as Tobetsa Mobile Banking which is accessible via *187*247#. Our ATMs also offer the flexibility of allowing you to deposit, withdraw cash, and more.
With self-service banking, you have the reins of your financial affairs, accessible from the comfort of your home, workplace, or while you’re on the move. So why wait? Take control of your finances today with self-service banking.
Duduetsang Chappelle-Molloy is Head: Marketing and Corporate Communication Services
Botswana has recently recorded a significant trade deficit of over P6 billion. This trade deficit, which occurred in November 2023, follows another deficit of P4.7 billion recorded in October of the same year. These figures, released by Statistics Botswana, highlight a decline in export revenues as the main cause of the trade deficit.
In November 2023, Botswana’s total export revenues amounted to P2.9 billion, a decrease of 24.3 percent from the previous month. Diamonds, a major contributor to Botswana’s exports, experienced a significant decline of 44.1 percent during this period. This decline in diamond exports played a significant role in the overall decrease in export revenues. However, diamonds still remained the leading export commodity group, contributing 44.2 percent to export revenues. Copper and Machinery & Electrical Equipment followed, contributing 25.8 percent and 10.1 percent, respectively.
Asia emerged as the leading export market for Botswana, receiving exports worth P1.18 billion in November 2023. The United Arab Emirates, China, and Hong Kong were the top destinations within Asia, receiving 18.6 percent, 14.2 percent, and 3.8 percent of total exports, respectively. Diamonds and Copper were the major commodity groups exported to Asia.
The Southern African Customs Union (SACU) received Botswana’s exports worth P685.7 million, with South Africa being the main recipient within SACU. The European Union (EU) received exports worth P463.2 million, primarily through Belgium. Australia received exports worth P290 million, while the United States received exports valued at P69.6 million, mostly composed of diamonds.
On the import side, Botswana imported goods worth P9.5 billion in November 2023, representing an increase of 11.2 percent from the previous month. The increase in imports was mainly driven by a rise in Diamonds and Chemicals & Rubber Products imports. Diamonds contributed 23.3 percent to total imports, followed by Fuel and Food, Beverages & Tobacco at 19.4 percent and 15.0 percent, respectively.
The SACU region was the top supplier of imports to Botswana, accounting for 77.7 percent of total imports. South Africa contributed the largest share at 57.2 percent, followed by Namibia at 20.0 percent. Imports from Asia accounted for 9.8 percent of total imports, with Diamonds, Machinery & Electrical Equipment, and Chemicals & Rubber Products being the major commodity groups imported. The EU supplied Botswana with imports worth 3.2 percent of total imports, primarily in the form of Machinery & Electrical Equipment, Diamonds, and Chemicals & Rubber Products.
Botswana’s recent trade deficit of over P6 billion highlights a decline in export revenues, particularly in the diamond sector. While Asia remains the leading export market for Botswana, the country heavily relies on imports from the SACU region, particularly South Africa. Addressing the trade deficit will require diversification of export markets and sectors, as well as efforts to promote domestic industries and reduce reliance on imports.
The business sector in Botswana is optimistic about the year 2024, according to a recent survey conducted by the Bank of Botswana (BoB). The survey collected information from businesses in various sectors, including agriculture, mining, manufacturing, construction, and finance, among others. The results of the survey indicate that businesses expect trading conditions to improve in the first quarter of 2024 and remain favorable throughout the year.
The researchers found that firms anticipate improvements in investment, profitability, and goods and services exported in the fourth quarter of 2023 compared to the previous quarter. These expectations, combined with anticipated growth in all sectors except construction and real estate, contribute to the overall confidence in business conditions. Furthermore, businesses expect further improvements in the first quarter of 2024 and throughout the entire year.
Confidence among domestic market-oriented firms may decline slightly in the first quarter of 2024, but overall optimism is expected to improve throughout the year, consistent with the anticipated domestic economic recovery. Firms in sectors such as mining, retail, accommodation, transport, manufacturing, agriculture, and finance are driving this confidence. Export-oriented firms also show increased optimism in the first quarter of 2024 and for the entire year.
All sectors, except agriculture, which remains neutral, are optimistic about the first quarter of 2024 and the year ending in December 2024. This optimism is likely supported by government interventions to support economic activity, including the two-year Transitional National Development Plan (TNDP) and reforms aimed at improving the business environment. The anticipated improvement in profitability, goods and services exported, and business investment further contributes to the positive outlook.
Firms expect lending rates and borrowing volumes to increase in the 12-month period ending in December 2024. This increase in borrowing is consistent with the expected rise in investment, inventories, and goods and services exported. Firms anticipate that domestic economic performance will improve during this period. Domestic-oriented firms perceive access to credit from commercial banks in Botswana to be relaxed, while export-oriented firms prefer to borrow from South Africa.
During the fourth quarter of 2023, firms faced high cost pressures due to increased input costs, such as materials, utilities, and transport, resulting from supply constraints related to conflicts in Ukraine-Russia and Israel-Hamas. According to the survey report, the firms noted that cost pressures during the fourth quarter of 2023 were high, mainly attributable to increase in some input costs, such as materials, utilities, and transport arising from supply constraints related to the Ukraine-Russia and Israel-Hamas wars. â€śHowever, firmsâ€™ expectations about domestic inflation decreased, compared to the previous survey, and have remained within the Bankâ€™s 3 â€“ 6 percent objective range, averaging 5.4 percent for 2023 and 5.4 percent for 2024. This suggests that inflation expectations are well anchored, which is good for maintenance of price stability,â€ť reads the survey report in part.
However, firms’ expectations about domestic inflation decreased compared to the previous survey, and inflation expectations remained within the Bank’s objective range of 3-6 percent. This suggests that inflation expectations are well anchored, which is beneficial for maintaining price stability.
In terms of challenges, most firms in the retail, accommodation, transport, manufacturing, construction, and finance sectors considered the exchange rate of the Pula to be unfavorable to their business operations. This is mainly because these firms import raw materials from South Africa and would prefer a stronger Pula against the South African rand. Additionally, firms in the retail, accommodation, transport, and mining sectors cited other challenges, including supply constraints from conflicts in Russia-Ukraine and Israel-Hamas, as well as new citizen economic empowerment policies that some firms considered unfavorable to foreign direct investment.
On the positive side, firms highlighted factors such as adequate water and electricity supply, a favorable political climate, an effective regulatory framework, the availability of skilled labor, and domestic and international demand as supportive to doing business in Botswana during the fourth quarter of 2023.
Overall, the business sector in Botswana is optimistic about the year 2024. The anticipated improvements in trading conditions, supported by government interventions and reforms, are expected to drive growth and profitability in various sectors. While challenges exist, businesses remain confident in the potential for economic recovery and expansion.