Bloomberg News

Botswana Keeps Key Rate Unchanged as Inflation Set to Slow

August 01, 2011

(Updates with central bank comments from second paragraph.)

Aug. 1 (Bloomberg) -- Botswana’s central bank kept its benchmark interest rate unchanged at 9.5 percent, predicting that inflation will slow to within its target range next year.

“Low demand and the forecast modest external inflationary pressures contribute to the positive inflation outlook in the medium term,” the Gaborone-based Bank of Botswana said in an e- mailed statement today.

The central bank has kept the key rate steady this year after reducing it from 10 percent in December to help boost the economy of the world’s biggest diamond producer. The southern African nation fell into recession in 2009 after gem demand collapsed during the global economic crisis.

Annual inflation will probably stay above the bank’s 3 percent to 6 percent range until the second half of 2012 as food prices gain and costs in neighboring South Africa climb, the central bank said. Consumer prices rose 7.9 percent in June after increasing 8.3 percent in May, the statistics office said on July 15.

While the mining industry is expected to benefit from a recovery in world demand, Botswana’s economic growth will be curbed by a decline in government spending, the bank said.

Botswana plans to cut spending to bring its budget into balance by the 2012-13 fiscal year, Finance Minister Kenneth Matambo told reporters today. The fiscal gap will probably narrow to 6.2 billion pula ($959 million) in the year through March 2012 from 8.5 billion pula a year earlier, he said. The deficit widened to about 15 billion pula, or 15 percent of gross domestic product, in 2009-10, according to the government.

The pula strengthened 0.3 percent to 6.468 per dollar by 6:15 p.m. in Gaborone.

--Editors: Nasreen Seria, Emily Bowers.

To contact the reporter on this story: Gordon Bell in Johannesburg at gbell16@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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