16 April 2008
Botswana's central bank Governor Linah Mohohlo said it would be "a wrong move" to raise interest rates now as inflation is forecast to slow next year.
The inflation rate, driven mainly by rising food and energy costs, will probably drop to the upper end of the 3 percent to 6 percent target next year, Mohohlo said in an interview in Washington yesterday. The Bank of Botswana has left its benchmark interest rate unchanged at 14.5 percent since June even as inflation climbed to 9 percent in February, the highest in 17 months. The central bank in February lowered the inflation target range from 4 percent to 7 percent, aiming to keep it within the band over the next three years, rather than on an annual basis.
"It will be a wrong move to raise interest rates to begin with, unless inflation proves that it's gone beyond the limits we have forecast," Mohohlo said. Monetary policy was still "restrictive enough to curb price pressures," she said.
Inflation exceeded the central bank's target since July last year as food prices, which make up 22 percent of the consumer price index, and transportation costs rose. Moody's Investors Service, which rates Botswana's foreign currency debt at A2, the highest in Africa, said in December that interest rates may be raised if inflation doesn't drop into the target range.
"There was no evidence of 'second-round' effects of inflation boosting wage demands, giving the central bank room to keep interest rates unchanged," Mohohlo said.
"The tight monetary policy stance is doing the work for us," the governor said. The central bank will rely on other measures to curb inflation, such as maintaining a "competitive exchange rate" and talking "inflation down', Mohohlo added. Botswana's government pegs the pula to a basket of currencies that includes the dollar, euro and South African rand.
"The economic outlook for Botswana, the world's biggest diamond producer, is "bright," with expansion of more than 5 percent expected in the next two years, Mohohlo said. Non-mining industries, such as tourism and financial services, will start to contribute more to economic growth," she said.
Diamonds account for 75 percent of the country's exports and almost two-thirds of the government's revenue. The diamond industry is run by De Beers, the world's biggest diamond company, through a joint venture with the government.
The economy will benefit from plans by the government to require diamond producers to process the gems locally, Mohohlo said. Diamond output may increase to as much as 35 million carats this year from about 33 million carats last year, she added.
"We are actively engaged" in diamond projects, Mohohlo said. "In next the two to three years, we will see the economy generating good numbers.
I don't think we'll be in the position to generate double-digit growth as we did in the earlier years, but certainly it will be above 5 percent in the next two years."
(Bloomberg)
Be the first to Write a Comment!
Copyright © 2008 Mmegi/The Reporter. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
