The Bank of Botswana left its monetary policy rate unchanged at 5.5% on Thursday. Governor Lesego Moseki said the monetary policy committee's decision reflected a view that earlier policy moves had helped ease liquidity strains and provided support for the foreign exchange market.
In its latest guidance, the central bank set out inflation projections showing an average rate of 9% in 2026, with a decline to 5.5% expected in 2027. Those forecasts formed the backdrop to the committee's choice to maintain the current policy stance rather than adjust interest rates.
Moseki underscored that inflation remains subject to important upside risks. The governor pointed to potential second-round effects stemming from higher domestic fuel prices as a principal channel that could push inflation above the central bank's current projections. He also highlighted the possibility of increases in administered prices as another factor that could boost inflationary pressure.
At the same time, the governor noted conditions that could lead inflation to undershoot the bank's projections. Weakness in both domestic and global economic activity, continued fiscal tightness, or downward moves in international commodity prices were cited as scenarios that could reduce inflationary momentum.
The bank's statement framed the policy decision as one taken in light of observed improvements in liquidity conditions and the health of the foreign exchange market, balanced against clear risks in both directions for the inflation outlook.
Key context and takeaways:
- The monetary policy rate remains 5.5% following the committee's assessment of recent policy effects on liquidity and the FX market.
- Inflation is projected to average 9% in 2026, declining to 5.5% in 2027 according to the central bank.
- Upside risks include second-round effects from higher domestic fuel prices and possible increases in administered prices; downside risks include weak economic activity, tight fiscal space, and falls in international commodity prices.
The central bank's communication emphasizes a cautious stance: policy has so far eased liquidity and supported the exchange rate, while inflation forecasts remain uncertain and responsive to developments in energy costs, administered pricing, fiscal conditions and global commodity markets.