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The Bank of Botswana (BB) lowered its Bank Rate by 50 basis points to 5.0 percent, saying the "current state of the economy, both the domestic and external economic outlook as well as the inflation forecast, provides scope for easing monetary policy to support economic activity without undermining maintenance of inflation."


It is the first rate cut by Botswana's central bank since August 2016 and follows a drop in September inflation to 3.2 percent from 3.4 percent in August and July, within BB's target range of 3-6 percent.


"Subdued domestic demand pressures and the modest increase in foreign prices contribute to the positive inflation outlook in the medium term," BB said.

Botswana's economy grew by 1.0 percent year-on-year in the second quarter of this year, up from 0.8 percent in the first quarter for growth of 3.1 percent in the 12 months to June compared with a contraction of 0.7 percent in the year-ago period.


Overall growth was boosted by an increase of 4.9 percent in non-mining activity in the 12 months to June while mining sector activity shrank by 10.1 percent, slightly better than a contraction of 22.9 percent in the 12 months to June 2016.


Modest household income growth and restrained economic expansion in Botswana's trading partners is expected to keep growth in non-mining output below trend but the economy is expected to continued to expand gradually due to better external economic conditions, BB said.


But weak economic growth in South Africa could potentially undermine Botswana's growth by restraining private investment and household consumption, BB added.


Botswana's economy grew by 4.3 percent in 2016, up from contraction of 1.7 percent in 2015 as diamond sales rebounded and easy fiscal and monetary policies supported activity.


Botswana's pula has been trending higher since January 2016 and was trading at 10.4 to the U.S. dollar today, up 2.9 percent this year.

 

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