Moses D Pelaelo: Botswana's 2023 Monetary Policy Statement

Speech by Mr Moses D Pelaelo, Governor of the Bank of Botswana, at the launch of Botswana's 2023 Monetary Policy Statement, Gaborone, 22 February 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

The Monetary Policy Statement (MPS) is published at the beginning of the year to inform stakeholders about the framework for the formulation and implementation of monetary policy by the Bank of Botswana (the Bank). In this regard, the Bank, through the MPS, reviews inflation trends and policy performance and articulates the policy choices for the ensuing year. The MPS, together with the quarterly Monetary Policy Reports and the Press Conferences after each Monetary Policy Committee (MPC) meeting, also serve to fulfil the public's expectation of a transparent and accountable central bank in pursuit of the monetary policy mandate, as enshrined in the Bank of Botswana Act (CAP 55:01). There are six MPC meetings a year.

The 2023 MPS, therefore, reports on the previous year's economic and policy developments and evaluates the determinants of changes in the level of prices and their impact on inflation in Botswana. In turn, there is an assessment of economic and financial developments that are likely to influence the inflation path in the medium term and the Bank's policy choices in 2023. These assessments are anchored on a robust Forecasting and Policy Analysis System. Thus, price developments and policy options are evaluated in the context of a forward-looking monetary policy framework, that entails policy responses to projected deviation of inflation from the Bank's medium-term inflation objective range of 3 – 6 percent or any anticipated adverse impact on financial stability. In this respect, the MPS promotes an understanding of prospective conduct of monetary policy during the course of the year in order to anchor public expectations to the objective of a low, predictable and sustainable level of inflation.

In 2022, global economic performance and sentiment were negatively affected mostly by the ripple effects of the Russia-Ukraine war, global monetary policy tightening and the lingering effects of the COVID-19 pandemic, particularly zero-COVID policies and lockdowns in China. In addition to the adverse impact on global economic activity, the war resulted in significantly elevated commodity prices and, therefore, inflationary pressures. In response, there was generalised aggressive increase in policy interest rates and, hence, tightening of financial conditions. According to the International Monetary Fund (IMF)'s January 2023 World Economic Outlook (WEO) Update, global inflation increased from 4.7 percent in 2021 to 8.8 percent in 20221 , while the global economy is estimated to have expanded by 3.4 percent in 2022, lower than the 6.2 percent growth in 2021. Meanwhile, the continued roll-out of effective COVID-19 vaccinations in both advanced and emerging economies helped contain the spread of the virus and led to further relaxation of COVID-19 control measures, which offset some of the negative shocks experienced during the year.