Botswana Keeps Policy Rate Unchanged at 3.5%

The Central Bank of Botswana left its benchmark interest rate unchanged at 3.50% during its meeting held on February 26, 2026, maintaining the current stance for the second consecutive time. The decision aims to support the domestic economy amid ongoing global uncertainty, while keeping inflation within the central bank's target range of 3%-6% over the medium term. The annual inflation rate rose for the second month to 4.1% in January 2026, reaching the highest since June 2023. The MPC forecasts inflation to increase into the medium term, averaging 4.5% in 2026 and 4.7% in 2027. Meanwhile, the economy is expected to continue to operate below full capacity in the short-to-medium term. The central bank, citing Finance Ministry forecasts, said the economy is projected to contract 0.4% in 2025 due to weak diamond mining, before rebounding 3.1% in 2026 on stronger non-mining sector growth.

The Central Bank of Botswana held its benchmark interest rate steady at 3.5% during its meeting held on December 4, 2025, following a 160-bps hike in October designed to narrow the gap with commercial lending rates. The decision was aimed to support domestic economic activity in a context of heightened global uncertainty. Policymakers said the economy is expected to operate below full capacity in the short to medium term, limiting demand-driven inflation. While inflation may temporarily exceed the target range and risks remain skewed upward, it is projected to return to the target range over the medium term. The economy of Botswana plunged by 5.3% year-on-year in Q2 2025, extending the downturn into a sixth quarter, hindered by falling diamonds exports. Inflation accelerated for a third month to 3.9% in October but remained within the Bank’s 3%-6% target range. The central bank kept its inflation forecast at 2.7% for 2025 and trimmed its 2026 projection to 5.3%.

The Central Bank of Botswana raised its benchmark interest rate by 160 bps to 3.5% during its meeting held on October 30, 2025. This marked the first rate hike since June 2022, pushing borrowing costs to the highest since March 2022, aiming to enhance monetary transmission by reducing the gap between the policy rate and commercial bank lending rates. At the same time, policymakers balanced stronger inflationary pressures against a struggling economy. The inflation rate in Botswana accelerated for the second month to 3.7% in September 2025, the highest since August 2024. Inflation is expected to temporarily exceed the target range, with risks tilted to the upside. Meanwhile, real GDP contracted by 5.3% year-on-year in Q2, the most since 2020, extending the downturn into a 6th straight quarter, mainly due to the continuing weak diamond market. The economy is expected to continue to operate below full capacity in the short-to-medium term, though improving marginally into the medium term.