Botswana’s central bank raised its key interest rate by 160 basis points on Thursday (30th) in an effort to reduce the gap between its policy rate and the lending rates charged by commercial banks. The move follows a liquidity crisis triggered by the economic recession currently affecting the country.
With this decision, the Southern African nation’s policy rate rises to 3.5%, up from 1.9% previously. According to the institution, the adjustment aims to correct imbalances in the financial system and strengthen the effectiveness of monetary policy, ensuring greater stability in the banking sector.
Botswana’s economy contracted last year and is expected to shrink again this year due to the prolonged downturn in the global diamond market — the country’s main source of export revenue and income. This situation has hindered economic growth and worsened liquidity shortages within the financial system.
In August 2025, the central bank had kept the policy rate unchanged at 1.9%, marking the sixth consecutive meeting without changes. At the time, the decision was meant to support a weakened domestic economy, but signs of economic deterioration have now led to a policy shift.
According to the country’s main financial institution, the rate hike should improve monetary policy transmission, as commercial banks had been raising their lending rates amid declining liquidity. Falling diamond sales and increased government borrowing to cover the budget deficit have further intensified financial pressures.
Central Bank Governor Cornelius Dekop stated at a press conference that banks had been instructed not to raise their base lending rates again. He emphasized that the priority is to stabilize the financial system and restore investor confidence while maintaining a balance between growth and inflation control.
This month, credit rating agency Moody’s downgraded Botswana’s sovereign rating, citing the government’s difficulties in adapting to the global diamond industry downturn and rising public debt. The central bank now projects inflation to rise from an average of 2.7% this year to 5.9% in 2026, reflecting both external and internal pressures on the economy.
Source: Reuters
