Botswana Central Bank Hikes Key Rate in Policy Overhaul

The decision to increase the rate was taken to better anchor inflation expectations, said Lesedi Senatla, the central bank’s research and financial stability director. “We have seen from the latest Business Expectations Survey that businesses are beginning to feel that inflation is rising higher and higher.”

Price-growth has exceeded the upper limit of the central bank’s 3% to 6% target band since May, averaging 10.4% in the first quarter. It is now forecast to return within target in the first three months of 2023, compared with a previous forecast for the second quarter of 2022, Pelaelo said. “This increase is warranted because in the medium term we are looking at the totality of the inflation profile and trajectory and where we want to be in terms of price stability.”

Upside risks to the inflation outlook remain high and include increases in international commodity prices beyond current forecasts, global supply bottlenecks, the war in Ukraine and second-round effects of increases in local administered prices, he said.

The hike should also stem the decline in the pula, the second-worst performing currency on the continent this month, which has also placed pressure on prices.

The increase follows similar steps by other developing-market central banks, such as those in Ghana and Poland, to arrest a decline in their currencies that are exacerbating already-high inflation and to deter capital outflows from their markets. That’s as investors hunt for higher yields due to the U.S. Federal Reserve and other developed-market central banks putting the brakes on ultra-easy monetary policies.