Pula overvalued- report
Botswana’s Pula continues to be overvalued; a fresh report has disclosed. According to RMB Milk Index the Pula has returned from its five percent low in 2019 to its current six- year average overvaluation level of 35 percent. The RMB’s Milk Index compares the price of milk on the African continent. The Economist’s Big Mac Index measures purchasing- power parity between currencies and looks at how market exchange rates impact the price of goods in various countries.
RMB Africa Economist and Strategist, Neville Mandimika said they juxtapose the results from the Milk Index with other techniques like the Real Effective Exchange Rate ( REER). “The results assist investors and corporates with operations in African countries with decisions around hedging their foreign exchange risk.” He highlighted that milk prices have trended up, and this year’s main finding is that COVID- 19 exacerbated the valuation of certain currencies. In the last few months food prices have accelerated globally and have played their part in higher inflation prints in most of RMB’s coverage countries.
Milk Index co- author Nonjabulo Dladla also pointed out that a litre of milk in Botswana currently costs P0.81 more than it did a year ago.
“By our index measure, the pula remains persistently overvalued,” says. “In 2019, we were looking at a five percent low. Now we see the unit return to its six- year average overvaluation level of 35 percent”. Botswana’s exchange rate regime is reviewed annually, with any changes effective at the beginning of each year. Following the application of a - 2.87percent p. a. downward crawl in May 2020, in response to pandemic and anticipated inflation differentials with key trading partners, no changes have been effected to the pula exchange rate regime in 2021.