Botswana’s MPC Takes Three-Pronged Approach to Boost Economy

(Bloomberg) --

Botswana’s central bank cut its benchmark interest rate to the lowest level in more than 12 years, halved the reserve requirement for lenders and set the scene for currency depreciation as it seeks to support an economy hit by the coronavirus pandemic.

The monetary policy committee lowered the rate to 4.25% from 4.75%, Governor Moses Pelaelo said Thursday in a televised broadcast. That’s the first easing since a quarter-point reduction in August. The panel also reduced the primary reserve requirement for commercial lenders to 2.5% from 5% with effect May 13, which will inject liquidity of 1.6 billion pula ($132.6 million) into the banking system to help banks perform necessary functions for economic activity, Pelaelo said.

The central bank will further adjust the downward rate of crawl for the pula to 2.87% from 1.51% with effect May 1. That means the managed currency will now depreciate faster, boosting the competitiveness of exports from the world’s second-biggest producer of diamonds.

“The current state of the economy and the outlook for both domestic and external economic activity provide scope for easing of monetary policy to support domestic economic activity,” Pelaelo said.

The International Monetary Fund projects the economy will contract 5.4% this year, the worst since performance since 2015.

The coronavirus is lowering domestic demand pressures, Pelaelo said. Still, the central bank sees inflation accelerating to within the desired range of 3% to 6% by the fourth quarter of 2020. The rate of price growth has been stable at 2.2% for four months after reaching a record low of 2.1% in November.

©2020 Bloomberg L.P.

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