Botswana Holds Rate at 5.5%, Raises 2026 Inflation Forecast to 8.1%
Key Facts
The Bank of Botswana’s Monetary Policy Committee kept the policy rate at 5.5% in its October 29 decision, voting unanimously to hold. The decision came as inflation remained above the medium-term objective range despite easing in September, and as the bank raised its forecasts for average inflation this year and next. The bank said risks to the price outlook were tilted to the upside, with higher fuel and electricity costs potentially passing through to other prices. It also cited risks from El Niño, including drought, heatwaves and effects on agricultural and livestock production. The committee is scheduled to hold its next and final meeting of the year on December 3.
Headline inflation fell from 9.3% in August to 7.8% in September, but remained above the 3–6% target range and well above the 3.7% recorded in September 2025. The bank attributed the monthly decline mainly to a base effect from a domestic fuel price adjustment that took effect on September 15, 2025, contributing 0.93 percentage points to headline inflation at the time. Core inflation measures also declined over the same period: trimmed-mean inflation fell 16% from 8.3% to 7.4%. Inflation excluding administered prices fell from 5.9% to 5.3%. Still, September’s decline did not change the fact that inflation remained above the bank’s medium-term target range.
The bank raised its average inflation forecast for 2026 to 8.1% from the August estimate of 7.9%, and raised its 2027 forecast to 5.4% from 4.9%. It attributed the forecast revisions mainly to higher domestic fuel prices, while placing its 2027 forecast within the 3–6% medium-term target range. The committee said domestic pressures could broaden through second-round effects from higher fuel prices and electricity tariffs, as well as fuel cost under-recovery. Externally, the bank cited higher oil, gas and fertilizer prices and industrial inputs as price pressures. It added that potential El Niño effects, from lower rainfall and drought to crop failure and livestock deaths, posed further upside risks to inflation.
Economic activity data, meanwhile, showed improvement from the previous period, with real gross domestic product growing 3.7% in the 12 months ended June 2026, after contracting 2.9% in the corresponding period ended June 2025. Stronger performance in the mining sector supported the recovery, although overall economic performance remained weak. The Finance Ministry forecasts growth of 3.8% in 2026 and 4.1% in 2027, citing stronger-than-expected performance in the first half of 2026 and increased diamond production. The rate hold thus comes amid an expected economic recovery and still-elevated inflationary pressures. The bank said improved domestic liquidity since the final quarter of 2025, supported by government financing and spending, diamond revenues and adjustments to monetary policy operations, had eased financing costs.
Alongside holding the policy rate, the bank kept the standing deposit facility at 4.5%, or 100 basis points below the policy rate, and the standing credit facility at 6.5%, or 100 basis points above it. It also lifted the voluntary suspension imposed on commercial banks’ prime lending rates. The bank said improved liquidity could help lower lending rates and improve the transmission of monetary policy to the economy. The inflation path remains in focus ahead of the committee’s next meeting on December 3, its final scheduled meeting in 2026. The committee held meetings during the year in February, April, June, August and October, according to its published schedule.