Bank of Botswana increase Monetary Policy Rate

Good morning, let’s get into it!

When Bank of Botswana (BoB) raises its Monetary Policy Rate (MoPR) to 3.5% (from 1.9%) as reported, it means several things for the public in Botswana. MarketScreener+1 Here’s a breakdown of what it means, and how it can affect different groups.

What the MoPR is

• The MoPR is the rate at which BoB lends to commercial banks (via its monetary operations) and signals the stance of monetary policy.(Even though they advise banks not to increase their lending rates) Bank of Botswana+1

• It is a tool the central bank uses to influence interest rates in the economy, e.g., what banks charge for loans and what they pay on deposits.

Why BoB raised the rate to 3.5%

• According to the report, the central bank said they raised the rate “to try to narrow the gap with market lending rates, which have been driven higher by a liquidity squeeze.” MarketScreener

• That is: banks had already raised their lending rates because of funding/ liquidity issues; BoB needs to realign its policy rate so signals reflect market conditions.

• Also, inflation and exchange‐rate pressures were part of the backdrop: inflation is forecast to rise, and the currency (Pula) was being allowed to adjust. MarketScreener+1

What this means for the public

1. Borrowers (e.g., households, businesses)

   • If the policy rate goes up, commercial banks are likely to increase their interest rates on loans (home loans, business loans, credit cards) because their funding costs have gone up. So borrowing becomes more expensive.

   • This tends to slow down borrowing and spending, which can help cool inflation but may also slow economic growth.

2. Savers/depositors

   • In theory, higher policy rates give banks an incentive to pay higher interest on deposits (so you could earn more on savings) because they too face higher funding costs and need to attract deposits.

   • In practice, however, how much banks pass on the increase to deposit rates depends on competition among banks and liquidity conditions.

3. Inflation/cost of living

   • The central bank’s goal in raising the rate is to stabilize inflation (keep prices from rising too fast) and protect the purchasing power of the Pula. When borrowing/spending cools, it reduces pressure on prices.

   • For the public, if successful, it means slower price increases (which is good) but also slower growth (which can reduce job/income prospects).

4. Housing/investment decisions

   • For real estate or major purchases financed by loans: higher interest rates mean monthly repayments go up (or you borrow less). So if you were planning to take out a large loan, you may want to factor in higher rates.

   • For investors: rising interest rates may shift investment flows (e.g., people might prefer fixed interest instruments over riskier ones if rates go up).

5. Business & economic activity

   • Businesses may face higher financing costs; they may delay investments or expansion.

   • On the flip side, by trying to stabilize inflation and protect the currency, BoB is seeking a more stable environment for business in the medium term.

Some caveats and local context for Botswana

• The medium-term inflation target for Botswana is about 3%–6%. Bank of Botswana+1

• Although the rate has been raised now to 3.5% to reflect market conditions, the economy itself is going through some challenges (e.g., weaker diamond export demand) and liquidity‐squeeze issues. MarketScreener+1

• The rate increase is partly corrective (i.e., aligning policy to reality) rather than purely pre-emptive; banks had higher borrowing costs already.

• Because monetary policy takes time to transmit, the effects (slower borrowing, slower spending) may show gradually over 12-18 months.

What business owners should keep in mind?

Given your activities (content creation, online store, newsletter, etc.) in Botswana, here are three practical points:

• If you are planning to borrow (e.g., to invest in equipment for your store) now might be less favorable than earlier (because of higher borrowing costs). You might either postpone borrowing or negotiate fixed rates if possible.

• If you hold savings, check whether your bank is increasing deposit rates — you could potentially earn slightly more, though in practice the pass-through may be limited.

• Because slower borrowing and spending might slow economic growth, when planning your business/cash-flow projections, take into account the possibility of more moderate demand in the next year or so. You might consider delaying large capital investments until you’re comfortable with the financing costs.

Source:

Bank of Botswana