Botswana’s central bank cut its benchmark interest rate for a second time this year, bucking a trend set by central banks across Africa that have tightened monetary policy to bolster their currencies.
The Bank of Botswana lowered its main lending rate by 50 basis points to 6% on Thursday, following a 1 percentage-point reduction in February. At the same time, Nigerian policy makers announced further restrictions on foreign-exchange trading, while Kenya’s central bank Governor Patrick Njoroge indicated he may raise interest rates again.
Central banks in South Africa, Ghana, Angola, Kenya and Uganda have raised interest rates this year to rein in inflation as plunging commodity prices put pressure on their currencies. While Botswana, the world’s largest diamond producer, is also facing sliding revenues, fiscal surpluses in the past and adequate foreign-currency reserves means authorities are better able to defend the pula.
“The current state of the economy as well as the domestic and external economic outlook, including the inflation forecast, suggest that easing monetary policy is a step in the right direction,” the Bank of Botswana said.
Growth in the southern African nation is slowing, while inflation is subdued, giving the bank room to cut interest rates. The economy expanded 4.6% in the year through March, compared with 7.9% in the previous year, the central bank said. Consumer prices rose 3.1% in June from a year ago, close to the lower end of the bank’s 3% to 6% target band.
In Kenya, East Africa’s biggest economy, policy makers surprised the market on Wednesday by keeping the benchmark interest rate unchanged at 11.5% following 300 basis points of increases in the past two months.
Njoroge said on Thursday the bank will put further measures in place to curb inflation expectations if needed.
“The meeting yesterday indicated we are beginning to have an effect on inflation,” he said. “What we need to do is to stay the course and eventually the fever will break and inflation will come down to more moderate levels.”
Kenya’s shilling has weakened 10.5% against the dollar this year and was trading at 101.20 as of 3:17 p.m. in Nairobi, the capital. Botswana’s pula, which is pegged against a basket of currencies that includes South Africa’s rand, was trading at 10.17294 per dollar.
FOLLOW NEW AFRICA BUSINESS NEWS ON FACEBOOK @ New Africa Business News.com