Botswana to devalue currency by in 2024 due to inflation
In 2024, Botswana is set to permit its currency, the pula, to weaken by 1.51% against a basket of other currencies. This decision is based on the expectation that local inflation will surpass the price growth in the economies of Botswana's trading partners.
The process, known as an annual downward crawl, mirrors the rate observed in the previous year and will involve incremental, daily adjustments accumulating to a 1.51% depreciation over the year until December.
According to the statement from the Finance Ministry on Thursday, the need for this downward adjustment in the pula is attributed to the country's weak production capacity and overall economic productivity. The ministry notes that this strategy is also viewed as inflationary, with potential implications for price competitiveness.
Key Takeaways
Since 2005, Botswana has employed a monetary policy framework known as a "crawling peg" to manage its exchange rates. Under this system, the Botswana pula is pegged to a basket of foreign currencies, with the South African rand making up 45% of the basket, and the remaining portion consisting of International Monetary Fund (IMF) reserves referred to as Special Drawing Rights (SDRs). SDRs are composed of a mix of major international currencies, including the U.S. dollar, British pound, euro, yen, and renminbi. As part of this crawling peg system, Botswana applies an annual crawl rate to its currency. This rate determines the gradual and incremental adjustments made to the exchange rate over the year. In the context of the recent announcement, the annual downward crawl rate is set at 1.51%, reflecting the authorities' approach to managing the pula's exchange rate in response to economic conditions, inflation expectations, and competitiveness considerations.
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