Botswana’s central bank has increased its main lending rate as it now forecasts inflation to fall to within its target band of 3% to 6% in Q1 2023, rather than the previous forecast of the third quarter of this year.

"We still believe the high inflation is transitory as it is driven by supply-side factors... The decision to increase interest rates today is therefore to tame expectations," said the central bank’s research and financial stability director, Lesedi Senatla.

“This increase is warranted because in the medium term we are looking at the totality of the inflation profile and trajectory and where we want to be in terms of price stability,” the central bank's governor Moses Pelaelo stated.

The Bank of Botswana increased its Monetary Policy Rate by 51 points, from 1.14% to 1.65%, based on a 7-day instrument, Reuters reports. Back in February, the Bank of Botswana said it would move to using the yield on the seven-day Bank of Botswana certificate, known as the monetary policy rate, as opposed to the official Bank Rate to impact banks’ liquidity management decisions, thereby offering a direct link to policy changes, Bloomberg reports.

“We see the new rate as a better mechanism for influencing monetary policy in the economy,” the central bank's governor said.

"The new policy rate is a signalling rate showing (the) direction in which interest rates must move. Commercial banks will now be expected to adjust their prime rate by 51 basis points," Pelaelo added.

The rate hike decision was made to better anchor inflation expectations, according to the central bank’s research and financial stability director: “We have seen from the latest Business Expectations Survey that businesses are beginning to feel that inflation is rising higher and higher.”

In March, Botswana’s consumer inflation stood at 10%.