Gaborone  — Botswana's central bank expects inflation to rise above 3% in the second quarter for mainly transitory reasons, and will keep monetary policy accommodative, it said on Thursday.

Annual inflation — running at 2.3% in January — was last within the bank's 3%-6% target range in September 2019.

It dropped below 1% in 2020  as the Covid-19 pandemic depressed economic activity.

Finance minister Thapelo Matsheka hiked VAT, increased the fuel levy and introduced a new tax on sugary drinks in a budget speech on February 1, which the central bank expects to drive prices higher.

Despite that prospect, central bank officials said on Thursday that they were not planning to tighten monetary policy, after 100 basis points of rate cuts in 2020 to the current rate of 3.75%.

“Factors that will increase inflation this year are mainly  transitory and one-off,” deputy governor Kealeboga Masalila said.

“Therefore we have decided not to respond to the higher inflation forecast with a tighter monetary policy stance as most of these factors will not have second-round effects on prices.”


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