The Bank of Botswana (BoB) has reduced interest rates by 25 basis points to 1.9% despite rising inflation. It is the third consecutive rate cut in a year. The previous cuts were in December 2023 and June 2024.
Headline inflation in July rose to 3.5%, in line with the bank’s target.
“We hope that this decision will assist to stimulate the economy,” Bank of Botswana governor Cornelius Dekop said at Thursday’s MPC meeting.
Botswana inflation is projected to slightly increase in the medium term but still stay within the bank’s 3-6% target. It is expected to average 3% in 2024.
By reducing the lending rate, the bank hopes to boost Botswana’s economy by encouraging lending. In July, the IMF announced that Botswana’s economic growth would be 1% in 2024, lower than an earlier projection of 3.6%.
The slow economic growth has been driven by a sharp decline in diamond trading and mining activities which account for 80% of exports, one-third of fiscal revenues, and one-quarter of GDP.
Botswana’s diamond production was down 24% in H1 2024 compared to the same period in the previous year, according to a report by De Beers owner Anglo American.
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