By Adedapo Adesanya
As countries on the African continent continue to feel the economic impact of COVID-19, Botswana’s central bank, Bank of Botswana (BOB), has announced the reduction of its benchmark interest rate by 50 basis points to 4.25 percent.
Prior to this fresh reduction, interest rate was already at record lows due to good inflation levels and modest domestic demand.
“Our aim is to provide supportive monetary conditions for economic activity. The reduction of primary reserve requirements will free up 1.6 billion pula which will be used by banks to finance economic activity,” BoB Governor, Mr Moses Pelaelo, explained on Thursday.
According to Mr Pelaelo, consumption and production would have been disrupted if inflationary pressures would be pushed down further by the COVID-19 pandemic and lockdown measures.
“To complement the bank rate in easing real monetary conditions, we have also adjusted the downward rate of crawl of the exchange rate to 2.8 percent from 1.5 percent, in a bid to enhance to domestic economy’s international competitiveness,” he said.
Additionally, the BoB reduced by half the Primary Reserve Requirements (PRR) for commercial banks to 2.5 percent while the prudential Capital Adequacy Ratio (CAR) was also reduced from 15 percent to 12.5 percent.
Botswana, which has reported less than 30 confirmed COVID-19 cases and one death so far, forecasts its economy to contract by 13.1 percent in 2020 while the budget deficit is expected to increase substantially.
