Money – Banking · Editorial

By Moakanyi Magazine · June 2026

A central bank facing inflation near double digits is expected to do one thing: raise rates. In April 2023 the Bank of Botswana did the opposite of that reflex. With inflation running close to 9.9 percent, it held the policy rate at 2.65 percent, choosing patience over a tightening cycle that many of its peers were already deep into.

The decision rested on a forecast rather than a fear. The bank expected price pressures to fade and inflation to return to its 3 to 6 percent target band by the middle of 2024. The hold was a bet that the surge was passing through the economy, not lodging in it – a distinction that decides whether restraint is wise or reckless.

The Call: Reading Through the Spike

Holding at 2.65 percent while inflation sat near 9.9 percent looks, on paper, like a wide and uncomfortable gap. The logic is that much of the price pressure came from sources a rate hike cannot reach – imported fuel and food, supply costs set well beyond Gaborone. A small, open economy imports a large share of what it consumes, and the prices of those imports are written in other capitals, by shocks the Bank of Botswana did not cause and cannot vote away. Raising the cost of borrowing does little to cool prices driven from outside the domestic economy, and a great deal to slow activity at home.

Central bankers call this looking through a supply shock. A one-off jump in import costs lifts the inflation rate for a year and then washes out of the comparison, even if no policy moves at all. Tightening into that kind of spike risks fighting a fire that is already burning down on its own, while leaving the domestic economy with the burns – slower demand, costlier credit, weaker investment.

A rate set against imported inflation punishes borrowers without touching the cause.

The Wager: Forecast as Policy

By keeping the rate steady, the bank signalled confidence that the 3 to 6 percent band was within reach by mid-2024. That is a forecast doing the work of a policy lever. It spares households and firms a higher debt burden during a tight period, on the condition that the projection holds. For a Botswana operator carrying working-capital lines or asset finance, the hold meant the cost of money did not climb just as demand was already soft – a meaningful reprieve when margins are thin.

The risk is the mirror image of the reward. If price pressures had proven sticky rather than passing – if the spike had fed into wages, rents and the prices firms set for one another – a delayed response would have meant chasing inflation later, and harder. The hold traded the certainty of acting now for the possibility of a softer path, and staked the bank's credibility on the forecast being right.

Patience is cheap when the forecast is right and expensive when it is wrong.

The Read for Operators: Cost of Money, Cost of Credibility

For decision-makers, the lesson sits beneath the headline rate. A central bank willing to hold through a near-double-digit print is one that trusts its own anchor – and the value of an anchor is that businesses can plan against it. The stable rate is one signal; the named return date of mid-2024 is the other, telling firms where to set their own expectations rather than reacting to the latest print.

That clarity has commercial weight. Pricing, hiring and investment decisions all hinge on what the cost of money will be twelve months out. A bank that telegraphs steadiness lets operators commit rather than wait, and waiting is its own quiet tax on an economy already absorbing a slowdown.

A credible band lets firms plan; an uncertain one makes them hesitate.

The April 2023 hold framed the central question for any small, open economy: when inflation is largely imported, restraint can be the disciplined choice rather than the timid one. The test was always whether prices would drift back toward target on their own – and whether the Bank of Botswana had read the spike correctly. The hold was not the absence of a decision. It was a decision to trust a forecast, with the credibility of the band riding on it.

Sources: Reuters