BoB sees risks as inflation drops from peak
The Bank of Botswana (BoB) says inflation has passed its peak but the downtrend to the three to six percent target range is fraught with major threats, BusinessWeek has learnt. The central bank raised interest rates three times this year in response to climbing inflation, sparking outrage from ordinary Batswana. From 14.6% in August, which represented a 14-year high, inflation has since declined to 13.1% in October, as global fuel prices have eased in recent months.
Responding to BusinessWeek enquiries recently, BoB executives projected that inflation would drop to 12.4% in November, average 11.4% in the first quarter of next year, 8.8 percent in the second quarter and seven percent in the first quarter of 2024. The Bank expects that inflation will decline to 5.8 percent in the third quarter of 2024, officially returning to the three to six percent target range for the first time since April 2021.
“We have hope that inflation in many countries around the world is also going down such as in the United States, Eurozone and South Africa and also oil prices are slowing down,” the Bank’s governor, Moses Pelaelo said.
“There’s still a challenge that perhaps, especially with oil, we don’t know where they will fall.
“The Russia/Ukraine war is still ongoing and that’s a threat, while COVID-19 is not totally gone.”
Research and financial stability director, Lesedi Senatla told BusinessWeek that the projected trends in inflation were in line with the expectations previously made by the Bank.
“Part of the drivers of inflation are beginning to peter out of the calculation, as we have been saying that inflation will begin to come down,” he said.
“From June, we have been saying that and you are witnesses that inflation is beginning to come down.
“However, this projection is conditional on what we know now and we don’t know what we don’t know, such as shocks involving COVID-19 going out of kilter.”
The Bank’s deputy governor, Kealeboga Masalila said there were numerous risks to the inflation outlook. “If the arrangements around easing supplies out of the Ukraine conflict don’t materialise, then that’s a pressure on inflation.
“If the tensions around China and Taiwan, whether tensions around a potential problem or an actual boxing match, occur, then that’s a problem for inflation.
“We know what we know now about administered prices, but if there are numbers above what we project, then we will get higher inflation. “If inflation expectations remain elevated and prices go up by a larger quantum, or wages rise sharply, then there could be a problem in inflation,” Masalila told BusinessWeek.
Deputy governor, Tshokologo Kganetsano added that entities such as the Water Utilities Corporation, Botswana Power Corporation and Botswana Housing Corporation could request tariff increases beyond what the BoB expects, which would upset the projection that inflation has peaked and is declining.
Inflation has averaged 12.1% thus far this year, the highest since 2008, driven largely by fuel and food increases. Over the same period last year, January to October, inflation averaged 6.3 percent.