Bots says risks to inflation high

GABORONE – Inflation in Botswana will likely trend up in the next few months due to higher food and fuel prices, but the bank will not use measures that will strangle economic growth in an effort to arrest inflation, central bank Governor Lenah Mohohlo said yesterday.

Botswana’s consumer price inflation raced to 11,1 per cent year-on-year in April, on the back of increasing food and fuel prices and the bank increased its key interest rate by 50 basis points to 15 per cent in May to try to curb inflation. Although the central bank said higher prices had not spread to the rest of the economy yet, it painted a bleak inflation picture on the back of higher electricity tariffs and a 15 per cent wage increase for civil servants, the largest workforce in the country.”We see many reasons why inflation could get worse,” Mohohlo told Reuters after the central bank released its annual report, adding the bank expected higher wage demands from other sectors.She said while trying to contain inflation and inflation expectations, the bank would also be mindful of economic growth.”We have to make sure that as we contain inflation we don’t undermine economic growth.Monetary authorities all over the world are caught between a rock and a hard place,” she said.”The question is: to what extent do we raise rates without straining growth?” Botswana has an inflation target of three to six per cent in the medium term compared with four to six per cent last year.”Our responsibility is to anchor inflationary expectations.This (3-6 per cent) target has been well-thought out, and the monetary authorities are serious about this ensuring price stability,” Mohohlo said during the presentation of the annual report.”Part of the responsibility of containing inflation is to partly attain economic growth because high inflation undermines economic growth and erodes confidence.If investors lose confidence there will be no economic growth because it is generated through investments,” she said.Botswana’s economy grew by 6,1 per cent in 2006/2007, from a moderate rise of 0,5 per cent in 2005/06.Mining, which contributes 42 per cent to Growth Domestic Product grew by 5,2 per cent while the non-mining sector grew by 6,8 per cent.Mohohlo said maintaining robust growth in non-mining sectors was critical in an economy that relies heavily on diamonds because “we don’t want to have lacklustre growth when the diamonds run out”.Nampa-ReutersAlthough the central bank said higher prices had not spread to the rest of the economy yet, it painted a bleak inflation picture on the back of higher electricity tariffs and a 15 per cent wage increase for civil servants, the largest workforce in the country.”We see many reasons why inflation could get worse,” Mohohlo told Reuters after the central bank released its annual report, adding the bank expected higher wage demands from other sectors.She said while trying to contain inflation and inflation expectations, the bank would also be mindful of economic growth.”We have to make sure that as we contain inflation we don’t undermine economic growth.Monetary authorities all over the world are caught between a rock and a hard place,” she said.”The question is: to what extent do we raise rates without straining growth?” Botswana has an inflation target of three to six per cent in the medium term compared with four to six per cent last year.”Our responsibility is to anchor inflationary expectations.This (3-6 per cent) target has been well-thought out, and the monetary authorities are serious about this ensuring price stability,” Mohohlo said during the presentation of the annual report.”Part of the responsibility of containing inflation is to partly attain economic growth because high inflation undermines economic growth and erodes confidence.If investors lose confidence there will be no economic growth because it is generated through investments,” she said.Botswana’s economy grew by 6,1 per cent in 2006/2007, from a moderate rise of 0,5 per cent in 2005/06.Mining, which contributes 42 per cent to Growth Domestic Product grew by 5,2 per cent while the non-mining sector grew by 6,8 per cent.Mohohlo said maintaining robust growth in non-mining sectors was critical in an economy that relies heavily on diamonds because “we don’t want to have lacklustre growth when the diamonds run out”.Nampa-Reuters