Brian Benza
18 March 2009
Pulled down by the continued cuts in fuel prices, year-on-year inflation fell to a 10-month low last month, the Central Statistics Office(CSO) has reported.According to CSO data, annual inflation fell to 11.7 percent, down by 1.1 percentage points from 12.8 percent in January.
The last time annual inflation was under 12 percent was in April last year, before it went up to an all- time high 15.1 percent because of high food and oil prices.
"The February National Consumer Price Index was 124.1, registering an increase of 0.2 percent on the January index of 123.8. The rural villages' index moved from 129.3 to 129.4 between January and February, an increase of 0.1 percent.
" The urban villages' index increased by 0.2 percent - from 123.9 to 124.1 between the two months, while the cities and towns' index rose from 121.6 to 122.0, recording an increase of 0.3 percent.
" Only one group index recorded a change of more than 1.0 percent between January and February - Restaurants & Hotels (1.1 percent). The rise was due to an increase in the constituent section index of Restaurants, Cafes and the Like (1.1 percent)," a statement released by the CSO says.
In line with the falling inflationary pressures and the need to support economic growth, the Bank of Botswana (BoB) has reduced the Bank Rate from 15 to 14 percent.
This is the second time the Central Bank has reduced interest rates in the past three months with the last reduction in December when it was cut by 0.5 percent.
Although inflation remains above the central bank's medium-term objective range of 3 - 6 percent, it is anticipated that inflation will move towards it in 2009.
However, there is a threat to the inflation outlook due to a possible significant increase in administered prices.
Speaking recently in Gaborone, economist Dr Keith Jefferis said he believes inflation should move towards the upper end of the central bank's objective by year-end and therefore there should be significant interest rate cuts in the coming months.
"As is well known, Botswana has relatively high interest rates, which have been reduced slightly in recent months but we have not seen the type of dramatic cuts in interest rates that have been witnessed in other economies.
" I believe inflation will fall sharply in Botswana over the next six months, probably reaching or approaching the upper end of the Bank of Botswana's objective range of three-six percent by the middle of the year.
"With inflation posing little threat in Botswana or elsewhere, I believe that there will be scope for further reductions in interest rates in the coming months which will help to support business conditions and provide some relief for the private sector in difficult times," Jefferis said.
It is worth noting that even central banks that have been in the frontline of inflation targeting, such as the Bank of England and the Reserve Bank of New Zealand, have been cutting rates at unprecedented speed to support economic recovery, with inflation concerns taking a back seat.
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