Botswana’s central bank left its benchmark interest rate unchanged at 3.5%, as inflation edges higher and economic growth remains subdued.
The decision, announced at the end of the Bank of Botswana’s first Monetary Policy Committee (MPC) meeting of the year, extends a pause that began in December, following a cumulative 160 basis-point hike in October, from 1.9% to 3.5%. The October increase marked the first rate rise since June 2022.
In its statement, the bank said it resolved to “maintain the Monetary policy Rate (MoPR) at 3.5 percent; conduct the 7-day Bank of Botswana Certificates auctions, repos and reverse repos at the MoPR of 3.5 percent.”
The bank also kept the Standing Deposit Facility (SDF) rate at 2.5%, 100 basis points below the MoPR, and the Standing Credit Facility (SCF) rate at 4.5%, 100 basis points above the benchmark. It added that it would continue enforcing its directive preventing commercial banks from increasing their Prime Lending Rates.
Inflation pressures build
The MPC’s decision reflects a delicate balancing act between supporting a fragile recovery and containing mounting price pressures.
Annual inflation rose to 4.1% in January from 3.9% in December, driven by higher food, transport, and health-related costs. On a month-on-month basis, the consumer price index increased 0.6%, from 139.6 in December 2025 to 140.5 in January. Core inflation edged up to 4.6% from 4.5%, according to Statistics Botswana.
The bank now projects average inflation at 4.5% this year and 4.7% next year.
However, policymakers warned that risks are tilted to the upside. A proposed electricity tariff increases from April, potential hikes in public transport fares and the impact of a recent foot-and-mouth disease outbreak on meat supplies could intensify price pressures.
“There is a greater risk of inflation being higher than currently projected,” the committee said.
The bank also flagged the proposed “reduction in VAT zero-rated items in the 2026/27 Budget” as a potential inflationary factor. External risks remain elevated, including higher global commodity prices, logistics bottlenecks, and the impact of US trade tariffs and geopolitical tensions.
Despite these concerns, the committee maintained that inflation is likely to remain within its objective range over the medium term.
“The economy is expected to continue to operate below full capacity in the short-to-medium term,” the committee said. “Inflation is projected to be within the objective range in the medium term. This outlook supports maintaining a broadly accommodative monetary policy stance that would support economic activity.”
Economic growth has struggled to regain traction. “Real gross domestic product (GDP) grew by 0.1 percent in the twelve months to September 2025, marking a modest recovery from the 1.7 percent contraction in the corresponding period of 2024,” the bank said, noting that non-mining sectors underpinned the rebound.
Still, “the pace of growth remains weak and fragile,” it acknowledged.
Looking ahead, the bank struck a cautiously optimistic tone. “Economy is expected to recover in 2026, with a projected 3.1 percent growth,” it said. “The recovery is anticipated to be driven primarily by expected stronger performance in non-mining sectors, supported by the effective implementation of economic diversification initiatives.”
For investors, the decision signals policy continuity amid external uncertainty and domestic structural challenges, as Botswana navigates a narrow path between safeguarding price stability and nurturing a still-fragile recovery.
