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The decision takes the Southern African country’s Monetary Policy Rate to 3.5%, up from 1.9% previously. It is first after a 43-month period -since March 2022 as inflation accelerated and liquidity pressures deepened in the economy.
Botswana’s central bank hiked its main interest rate by 160 basis points on Thursday to try to narrow the gap with market lending rates, which have been driven higher by a liquidity squeeze caused by an economic slump.
The decision takes the Southern African country’s Monetary Policy Rate to 3.5%, up from 1.9% previously. It is first after a 43-month period -since March 2022 as inflation accelerated and liquidity pressures deepened in the economy.
The Monetary Policy Committee said the move aims to align the policy rate more closely with market lending rates, which have surged amid a tightening liquidity environment and slowing economic growth.
Central Bank Governor Cornelius Dekop said that commercial banks have been instructed not to raise their prime lending rates further, a directive aimed at preventing additional pressure on borrowers and the broader economy.
Botswana’s economy — heavily dependent on diamonds, which account for around 90% of export earnings — has been struggling with weak global demand and falling prices. The downturn in the diamond market has squeezed foreign exchange inflows, constrained liquidity, and driven up borrowing costs.
The central bank noted that banks have already raised their lending rates in recent months as liquidity dried up, worsened by rising government borrowing to plug widening fiscal deficits.
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The rate decision follows a downgrade by Moody’s Investors Service earlier this month, which cut Botswana’s sovereign rating to Baa1, citing the government’s limited fiscal flexibility and difficulties adjusting to the diamond industry slump.
Inflation rose to 3.7% year-on-year in September, up from 3.3% in August — the highest in 13 months — though still within the central bank’s 3%–6% target band. The acceleration was driven mainly by higher food and utility prices.
