The Bank of Botswana (BoB) has reduced its key interest rate by 25 basis points, bringing it down to 1.9%, despite an uptick in inflation.
This marks the third consecutive rate cut within a year, with previous reductions occurring in December 2023 and June 2024.
Headline inflation in July rose to 3.5%, which is within the central bank’s target range of 3-6%.
Bank of Botswana Governor Cornelius Dekop, speaking at the Monetary Policy Committee meeting on Thursday, stated, “We hope that this decision will assist to stimulate the economy.”
The rate cut is intended to encourage lending and economic activity in the face of slower growth.
The reduction comes as Botswana’s economy faces significant challenges.
In July, the International Monetary Fund (IMF) revised the country’s economic growth forecast for 2024 down to 1%, a sharp decrease from an earlier projection of 3.6%.
The slowdown has been attributed primarily to a decline in diamond trading and mining activities, which are critical to Botswana’s economy, accounting for 80% of exports, one-third of fiscal revenues, and one-quarter of GDP.
According to Anglo American, the parent company of De Beers, Botswana’s diamond production dropped by 24% in the first half of 2024 compared to the same period in the previous year.
Despite the economic headwinds, inflation is projected to remain within the central bank’s target range, averaging 3% in 2024.
