Bots to keep monetary policy ‘restrictive’

GABORONE – Botswana will maintain a tight monetary policy to keep a lid on price pressures, even though inflation for the first three months of 2006 was revised sharply downwards last week, the central bank governor said yesterday.

“When you look at the current rate of inflation, it’s still way above what the central bank would like it to see in terms of price development,” Bank of Botswana Governor Linah Mohohlo told Reuters in an interview. The Central Statistical Office revised inflation figures back to January last week, saying it had overestimated the impact of the introduction of public secondary school fees.It cut March’s annual consumer price inflation rate to 13,8 per cent from 17,7 per cent, and said the annual rate in April was 14,2 per cent.”Monetary policy will continue to be restrictive.There is nothing in the foreseeable future that suggests to us that there would be a significant moderation of price development, sufficient to give us confidence to adjust monetary policy downwards,” Mohohlo said.The Bank of Botswana raised its key bank rate by half a percentage point to 15 per cent in February.The country introduced a formal inflation target of three to six per cent for the coming three years in February, but indicated that the target would not be achieved this year.Moholo said “restrictive” meant either higher or unchanged interest rates.”Monetary policy is already tight.It will continue to be restrictive even if we don’t do anything,” she said.Mohohlo said that other factors such as higher petrol prices and a big increase in payments to farmers by the government, as well as expectations, were adding to the inflationary pressures.”The big problem is really expectations.They loom large.As we speak, as a result of the 17,7 per cent inflation number for March before the revision, the market is adjusting their own prices to the tune of 20 per cent,” she said.Moholo said the pula would continue to gradually weaken under the government’s crawling band exchange rate mechanism launched in May 2005 after the currency was devalued by 12 per cent.”Because of the differential in inflation compared to our partner countries …the exchange rate will continue to go downwards to mitigate the negative effect of an appreciating real effective exchange rate,” she said.”Since the devaluation we saw the exchange rate coming to levels which were supportive for industry,” she added.The crawling band mechanism is the function of the differential between the expected inflation rate in Botswana on the horizon of about 12 months and the average of the inflation rate of Botswana’s trading partners, she said.Moholo called on the government to make public the rate of crawl to aid the private sector in their investment and business plans.- Nampa-ReutersThe Central Statistical Office revised inflation figures back to January last week, saying it had overestimated the impact of the introduction of public secondary school fees.It cut March’s annual consumer price inflation rate to 13,8 per cent from 17,7 per cent, and said the annual rate in April was 14,2 per cent.”Monetary policy will continue to be restrictive.There is nothing in the foreseeable future that suggests to us that there would be a significant moderation of price development, sufficient to give us confidence to adjust monetary policy downwards,” Mohohlo said.The Bank of Botswana raised its key bank rate by half a percentage point to 15 per cent in February.The country introduced a formal inflation target of three to six per cent for the coming three years in February, but indicated that the target would not be achieved this year.Moholo said “restrictive” meant either higher or unchanged interest rates.”Monetary policy is already tight.It will continue to be restrictive even if we don’t do anything,” she said.Mohohlo said that other factors such as higher petrol prices and a big increase in payments to farmers by the government, as well as expectations, were adding to the inflationary pressures.”The big problem is really expectations.They loom large.As we speak, as a result of the 17,7 per cent inflation number for March before the revision, the market is adjusting their own prices to the tune of 20 per cent,” she said.Moholo said the pula would continue to gradually weaken under the government’s crawling band exchange rate mechanism launched in May 2005 after the currency was devalued by 12 per cent.”Because of the differential in inflation compared to our partner countries …the exchange rate will continue to go downwards to mitigate the negative effect of an appreciating real effective exchange rate,” she said.”Since the devaluation we saw the exchange rate coming to levels which were supportive for industry,” she added.The crawling band mechanism is the function of the differential between the expected inflation rate in Botswana on the horizon of about 12 months and the average of the inflation rate of Botswana’s trading partners, she said.Moholo called on the government to make public the rate of crawl to aid the private sector in their investment and business plans.- Nampa-Reuters