Headline inflation for March diminished to 4.4% y/y as revealed by data from Statistics Botswana. The 0.2 percentage point decrease from February was mainly steered by the decline of the Food & Non-Alcoholic Beverages sector (down by 0.3 percentage points) and the 0.9 percentage point plunge on the Transport sector (of weight 18.98%). The Alcoholic Beverages, Tobacco & Narcotics group also fell by a huge 1 percentage point.

However, the Housing, Water, Electricity, Gas & other fuels group which weighs about 11.5% edged up by 0.2 percentage point while Restaurant & Hotels rose by 0.5 percentage point. Other sector within the basket were flat such as Education and Miscellaneous Goods & Services (weight: 9.6%) among others.

The figures were in line with our expectations as the Alcoholic Beverages decline, reflected the easing of the alcohol levy impact on inflation. The Food sector which holds the largest weight of 21.8% on the goods basket has been on a declining trend for more than 6 months, due to the stability of the Pula relative to the rand. Botswana imports a huge chunk of more than 80% of its food products from SA.

Going forward we expect inflation to remain range bound, though there could be some insignificant upward pressures coming from the Housing, Water, Electricity, Gas & other fuels group following the Electricity tariff which was imposed by the beginning of April 2014. There could also be some upward pressures fuelled by potential increases in fuel prices due to the weakening of the Pula to the dollar.

As a mission by the Bank of Botswana to propel the ailing economy, we expect the bank rate to remain at current levels of 7.5% in the short to mid-term. (Motswedi Securities)