April 30, 2020 / 3:05 PM / a month ago

UPDATE 1-Botswana cuts rates, banks' capital ratios in coronavirus response

(Adds details, governor quotes)

GABORONE, April 30 (Reuters) - Botswana’s central bank on Thursday cut its base interest rate by 50 basis points to 4.25%, as part of a series of interventions to cushion the economic impact of the coronavirus outbreak.

The bank’s monetary policy committee also halved the primary Reserve Requirements (PRR) for commercial banks to 2.5%, and the prudential Capital Adequacy Ratio (CAR) to 12.5% from 15%.

To date Botswana, which has implemented a state of emergency and a lockdown, has tested 6,210 people for the coronavirus, with 23 confirmed cases including one death.

“Our aim is to provide supportive monetary conditions for economic activity. The reduction of primary reserve requirements will free up 1.6 billion pula which will be used by banks to finance economic activity,” said central bank governor Moses Pelaelo.

Botswana’s benchmark interest rate was already at record lows due to benign inflation levels and modest domestic demand.

Pelaelo said inflationary pressures would be pushed down further by the COVID-19 pandemic and lockdown measures, which have disrupted production and consumption.

“To complement the bank rate in easing real monetary conditions, we have also adjusted the downward rate of crawl of the exchange rate to 2.8 percent from 1.5 percent, in a bid to enhance to domestic economy’s international competitiveness,’ Pelaelo said.

Botswana sees its economy shrinking by 13.1% this year while the budget deficit balloons.

Mining, the country’s biggest revenue earner, is expected to shrink by a third due to a 6.7 billion pula dip in diamond sales earnings, down from a 20 billion pula forecast earlier in the year. (Reporting by Brian Benzna, editing by Mfuneko Toyana and John Stonestreet)

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