Botswana Holds Interest Rate at 5.5% as Inflation Stays Above Target
Botswana Holds Interest Rate at 5.5%

Botswana Holds Interest Rate at 5.5% as Inflation Stays Above Target

By Mintesinot Nigussie  |  August 28, 2026

Botswana’s central bank has kept its monetary policy rate at 5.5 percent, opting to support a weak economic recovery while inflation remains well above its target range.

The Monetary Policy Committee unanimously decided to leave the rate unchanged, with headline inflation falling to 9.4 percent in July from 10.7 percent in June but remaining above the Bank of Botswana’s medium-term objective range of 3 percent to 6 percent.

Datanomics

The bank expects inflation to remain above that range until the first quarter of 2027, projecting an average of 7.9 percent for 2026 before easing to 4.9 percent next year.

The July decline was largely driven by a reduction in domestic fuel prices, which the central bank said lowered headline inflation by 2.3 percentage points. However, higher electricity tariffs, fuel costs and possible second-round effects are expected to sustain price pressures.

The inflation outlook also faces risks from livestock disease, possible El Niño conditions and higher international prices for oil, gas, fertiliser and food. Geopolitical tensions in the Middle East and renewed trade disputes could add further pressure.

Sheway Hair

The decision comes as Botswana’s economy shows only a modest recovery from last year’s contraction. Real gross domestic product expanded by 0.2 percent in the 12 months to March 2026, compared with a contraction of 1.6 percent a year earlier.

The improvement reflected a slower decline in mining output and recoveries in sectors including diamond trading, manufacturing and agriculture. Economic activity nevertheless remains constrained by weakness in the global diamond market, subdued international growth, low productivity and slow progress in economic transformation.

The Ministry of Finance expects real GDP growth of 3.1 percent in 2026, supported by a recovery in mining and continued expansion in non-mining sectors. The outlook, however, remains vulnerable to climate shocks, livestock disease, geopolitical tensions and changes in global trade patterns.

HypeFitness

The MPC said improved domestic liquidity, supported by government spending, higher diamond receipts and changes to monetary operations, had moderated funding costs and improved the transmission of monetary policy.

Alongside the decision to hold the policy rate, the central bank maintained the standing deposit facility at 4.5 percent and the standing credit facility at 6.5 percent. It also extended its moratorium on changes to commercial banks’ prime lending rates.

The Bank of Botswana left the parameters of the pula exchange-rate framework unchanged following its mid-year review. The currency basket will retain equal weights for the South African rand and the IMF’s Special Drawing Rights, while the annual downward crawl will remain at 2.76 percent.

The bank said the framework was intended to limit exchange-rate volatility and maintain the international competitiveness of domestic producers while supporting its objective of returning inflation to the 3 percent to 6 percent range over the medium term.

Source: FSX Business News