Botswana's central bank decided to hold its main lending rate unchanged at its first monetary policy meeting of the year on Thursday, stating that inflation is projected to stay within the target range over the medium term.

This move follows the Bank of Botswana's decision to keep the rate at 1.90% during its last two meetings in November and December.

In January, inflation in the Southern African nation rose to 2.5% on a year-on-year basis, up from 1.7% in December.

The central bank targets an inflation range of 3%-6% over the medium term, which it aims to maintain in order to ensure stable economic conditions, Reuters reports.

“Inflation is forecast to remain within the objective range in the medium term, similarly ... businesses expect inflation to be within the medium-term objective range, suggesting that inflation expectations are well-anchored,” stated central bank governor, Cornelius Dekop during a press conference.

“The economy is expected to operate below full capacity in the short term, even with a 3.3% growth (in 2025), and will recover only marginally in the medium term. This should not generate demand-driven inflationary pressures,” he went on to say.

The central bank’s decision reflects its belief that the inflation outlook remains stable despite the recent uptick. The monetary policy committee continues to monitor economic conditions and remains committed to fostering a stable and favourable environment for sustainable growth.

Botswana's economy heavily relies on diamond exports, and a significant decline in global demand for the precious stone led to an economic contraction last year.

However, the government is optimistic about a recovery this year, driven by a rebound in the global diamond market and stronger performance in other sectors of the economy.