The Bank of Botswana has revised its inflation forecast for this year to an average of 2.5%, down from the earlier projection of 3.9%. The adjustment reflects expectations of lower fuel prices and the Pula's strengthening against the South African Rand.

Although inflation has inched up slightly in recent months, it stood at 2.8% in March. This remains below the Bank's preferred range of 3 to 6%, which it considers optimal for supporting business activity and maintaining economic stability, Mmegi online reports.

Executives at the central bank noted that the United States’ stance on global trade tariffs has played a major role in driving down international oil prices, which at one point dropped to levels not seen since the COVID-19 pandemic. This decline is largely attributed to the trade tensions, especially with China, that have weighed heavily on global economic outlooks.

Furthermore, central bank governor Cornelius Dekop told MonitorBusiness last week that another factor expected to contribute to lower inflation this year is the continued weakness in domestic economic activity.

“The subdued forecast for inflation is because of base effects on the reduction of fuel prices and the subdued economic activity,” he said.

The muted economic activity is linked to diminished hopes for a strong rebound in the diamond sector, due to the drag US tariffs have placed on global growth, as well as sluggish progress in economic transformation efforts like diversification.

Innocent Molalapata, the Bank of Botswana’s Director of Research and Financial Stability, told MonitorBusiness that other reasons behind the downward revision of this year’s inflation forecast include an anticipated drop in water tariffs.

“At the time we did the projection in February, we didn't have information about the water tariffs, but now we know that we expect them to go down and that will have a downward effect on the inflation projection,” he said.

Molalapata also noted that a key factor expected to ease inflation is the recent downward revision of inflation expectations in South Africa. As a major source of Botswana’s imports, lower prices in South Africa are likely to reduce imported inflation, further contributing to the overall decline in price pressures.

“We also expect a higher appreciation of the Pula against the Rand compared to what we had projected at our last meeting. This is mainly because of how the Rand is expected to perform against other international currencies,” he said.

The last time inflation exceeded the Bank of Botswana's target range of 3 to 6% was in April 2023. Since then, the rate of price growth has been decreasing and, as of September 2024, has remained below 3%.