Cornelius K Dekop: Botswana's 2024 Monetary Policy Statement

Speech by Mr Cornelius K Dekop, Governor of the Bank of Botswana, at the launch of Botswana's 2024 Monetary Policy Statement, Gaborone, 21 February 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

The Monetary Policy Statement (MPS) is published at the beginning of the year to inform stakeholders about the framework for the formulation and implementation of monetary policy by the Bank of Botswana (the Bank). In this regard, the Bank, through the MPS, reviews inflation trends, outlook, as well as policy performance and articulates the policy choices for the ensuing year. The MPS, together with the subsequent Monetary Policy Reports (MPRs) published during the year, and the Media Briefings after each Monetary Policy Committee (MPC) meeting, also serve to fulfill the public's expectation of a transparent and accountable central bank in pursuit of the monetary policy mandate, as enshrined in the Bank of Botswana (Amendment) Act, 2022.

The 2024 MPS, therefore, reports on the previous year's economic and policy developments and evaluates the determinants of changes in the level of prices and their impact on inflation in Botswana. In turn, there is an assessment of economic and financial developments that are likely to influence the inflation path in the medium term and the Bank's policy choices in 2024. Thus, price developments and policy options are evaluated in the context of a forward-looking monetary policy framework, that entails policy responses to projected deviation of inflation from the Bank's medium-term inflation objective range of 3 – 6 percent or any anticipated adverse impact on financial stability. In this respect, the MPS promotes an understanding of prospective conduct of monetary policy to anchor and align public expectations to the objective of a low, predictable and sustainable level of inflation.

In 2023, the global economy continued to recover from the lingering effects of the COVID-19 pandemic and the Russia-Ukraine war. In addition, global economic performance was adversely affected by the impact of high inflation on the cost of living; the increase in the debt burden, due to the resultant high interest rates; reduction of fiscal support; and extreme weather events. Consequently, growth remained low and uneven across countries and regions. Thus, according to the International Monetary Fund (IMF)'s January 2024 World Economic Outlook (WEO) Update, global economic growth is estimated to have expanded by 3.1 percent in 2023, lower than the 3.5 percent in 2022. The subdued growth was more pronounced in advanced economies (particularly in the euro area and United Kingdom (UK), than in emerging market and developing economies. Meanwhile, global inflation is estimated to have decreased from 8.7 percent in 2022 to 6.8 percent in 2023, consistent with the slowdown in economic activity.

In Botswana, the Ministry of Finance estimates the economy to have expanded by 3.2 percent in 2023, a slowdown from 5.5 percent in 2022. Inflation has generally been on a downward trajectory since September 2022 and was mostly within the objective range from May 2023, averaging 5.2 percent in 2023. Contributing to lower inflation were the dissipating impact of the increase in prices controlled by government (administered prices) in 2022 (base effects); downward adjustment of domestic fuel prices in 2023; the decrease in foreign prices, particularly food and fuel, thus a decline in trading partner countries' inflation. Going forward, inflation is forecast to remain within the Bank's 3 – 6 percent objective range into the medium term and risks to the inflation outlook are assessed to be balanced.