June 23, 2009 / 3:44 PM / 11 years ago

Botswana cuts bank rate as economy struggles

JOHANNESBURG (Reuters) - Botswana’s central bank cut its main lending rate by 150 basis points to 11.5 percent on Tuesday, citing the decline in global economic activity and weaker domestic output.

In a statement posted on its website, the bank said while domestic inflation remained above a 3-6 percent target range, it was expected to maintain a downward trend in the medium term.

“In reducing interest rates, the bank recognises that the favourable inflation outlook continues to exist in the medium term, which is the relevant time frame for monetary policy, and provides scope for monetary policy easing,” it said.

“This scope for policy easing is in the context of the continued decline in global economic activity, as well as weaker domestic economic performance,” it added.

The global economic slowdown has slashed demand for the southern African country’s main produce, diamonds, and rating agencies say it faces deep contraction over the next two years.

The central bank said it remained committed to “responding appropriately to all economic and financial developments to achieve medium-term price stability, which contributes to long run sustainable economic growth”.

Standard Chartered head of research for Africa Razia Khan said Tuesday’s cut was unlikely to make much of a difference to Botswana’s growth outlook.

“With mining contributing a third of GDP, and the mines shut down for the first quarter of the year, a sizeable contraction (we think over 6 percent) in the economy is still likely,” said Khan.

In March, ratings agency Moody’s said a potentially steep and relatively long global recession would hit Botswana’s economy hard, resulting in a contraction of about 5.2 percent and 6.2 percent for the current and next financial years — which end in June — respectively.

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