Botswana introduces formal inflation target

GABORONE – Botswana’s central bank has introduced a formal inflation target of three to six per cent for the coming three years, but admitted it would not be achieved this year after the annual rate rose sharply at the end of 2005.

In a monetary policy statement published late on Monday, the Bank of Botswana (BoB) said that it would also stick to a short-term inflation objective of four to seven per cent as it worked to reduce price pressures in the country’s economy. Last week the central bank raised its key bank rate by half a percentage point to 15 per cent, saying the step was prompted by the fact that inflation surged to 16,6 per cent in January – its highest level for more than 12 years.During that month, inflation was spurred mainly by the introduction of fees for public secondary schools, but it had already jumped late in 2005 in response to an official devaluation of the pula in May, and higher administered prices.”Overall, given the expected modest increase in demand pressures and the benign influence of foreign price developments, inflation is expected to stabilise at levels around 16 per cent in the first and second quarters of 2006,” the BoB said in a statement received by Reuters yesterday.”The annual increase in prices is expected to decline thereafter as the impact of the devaluation and the 2005 administered price increases drop out of the inflation calculation…”it said.The Bank gave no further details on what level it expected annual inflation to reach by the end of 2006.It described the three to six per cent inflation target as “medium-term” goal aimed at “anchoring inflation expectations over a longer term horizon”.South Africa has the same inflation target, and inflation has remained inside that range for 29 consecutive months.- Nampa-ReutersLast week the central bank raised its key bank rate by half a percentage point to 15 per cent, saying the step was prompted by the fact that inflation surged to 16,6 per cent in January – its highest level for more than 12 years.During that month, inflation was spurred mainly by the introduction of fees for public secondary schools, but it had already jumped late in 2005 in response to an official devaluation of the pula in May, and higher administered prices.”Overall, given the expected modest increase in demand pressures and the benign influence of foreign price developments, inflation is expected to stabilise at levels around 16 per cent in the first and second quarters of 2006,” the BoB said in a statement received by Reuters yesterday.”The annual increase in prices is expected to decline thereafter as the impact of the devaluation and the 2005 administered price increases drop out of the inflation calculation…”it said.The Bank gave no further details on what level it expected annual inflation to reach by the end of 2006.It described the three to six per cent inflation target as “medium-term” goal aimed at “anchoring inflation expectations over a longer term horizon”.South Africa has the same inflation target, and inflation has remained inside that range for 29 consecutive months.- Nampa-Reuters