Botswana’s central bank reduces base interest rate to 4.25%

Botswana pula coins on the background of banknotes. [File Photo / Getty Images]
Botswana Pula coins and banknotes. (Getty Images)

Botswana’s central bank reduced its benchmark interest rate by 50 basis points to 4.25 percent as part of a number of measures to mitigate the economic impact of the coronavirus outbreak.

The Bank of Botswana (BoB) interest rate was already at record lows due to benign inflation levels and modest domestic demand.

“Our aim is to provide supportive monetary conditions for economic activity. The reduction of primary reserve requirements will free up 1.6 billion pula which will be used by banks to finance economic activity,” BoB Governor Moses Pelaelo said.

According to Pelaelo, consumption and production would have been disrupted if inflationary pressures would be pushed down further by the COVID-19 pandemic and lockdown measures.

“To complement the bank rate in easing real monetary conditions, we have also adjusted the downward rate of crawl of the exchange rate to 2.8 percent from 1.5 percent, in a bid to enhance to domestic economy’s international competitiveness.”

Additionally, the BoB reduced by half the Primary Reserve Requirements (PRR) for commercial banks to 2.5 percent while the prudential Capital Adequacy Ratio (CAR) was also reduced from 15 percent to 12.5 percent.

Botswana, which has reported 23 confirmed COVID-19 cases and one death, forecasts its economy to contract by 13.1 percent in 2020 while the budget deficit is expected to increase substantially.

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