Africa-Press – Botswana. The Bank of Botswana has raised its benchmark policy rate sharply from 1.9% to 3.5%, seeking to narrow the gap between its key rate and the higher lending rates charged by commercial banks.
The move follows a second consecutive year of economic contraction, as weak global demand for diamonds continues to weigh on Botswana’s growth and liquidity
Falling diamond exports have reduced foreign exchange inflows and tightened financial conditions, prompting banks to increase lending rates
The Bank of Botswana has raised its benchmark policy rate sharply from 1.9% to 3.5%, seeking to narrow the gap between its key rate and the higher lending rates charged by commercial banks. The move follows a second consecutive year of economic contraction, as weak global demand for diamonds continues to weigh on Botswana’s growth and liquidity.
Falling diamond exports have reduced foreign exchange inflows and tightened financial conditions, prompting banks to increase lending rates. The government’s rising borrowing needs to fund budget deficits have added further strain on liquidity. The central bank said the rate hike is intended to restore monetary policy effectiveness and improve transmission to the broader economy. It has, however, instructed banks not to raise their prime lending rates further in the near term.
Earlier in October, Moody’s downgraded Botswana’s sovereign rating, citing rising public debt and slow recovery in the diamond sector. Inflation rose to 3.7% year-on-year in September, its highest level in more than a year.
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