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Low fuel prices lead to another inflation target breach

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November’s year-on-year headline consumer price inflation (CPI) recorded yet another drop to 2.9 percent – 0.2 percentage points lower than October’s rate of 3.1 percent.

This is also lower than our expectations of an unchanged inflation rate m/m. On a year-on-year basis, CPI is significantly lower than the 4.3 percent printed in November 2014. This larger than expected drop is due to low local fuel prices, combined with lacklustre domestic demand, which exerted greater downward pressures on prices than we had anticipated.

This is, however, in line with recent global trends. Inflation has now printed below the 3 percent bottom band of the inflation target range for four times this year.

Transport, the second biggest category in the inflation basket accounting for approximately 19 percent, fell by 7.0 percent y/y, decelerating further from the 6.5 percent-drop recorded in October. Local fuel prices continue to decline in line with the international oil price and were to a large extent cushioned by the National Petroleum levy, which aims to protect local consumers from the volatility of international oil prices.

In September, retail pump prices of petrol, diesel and paraffin were all reduced by 15 thebe, 40 thebe and 40 thebe respectively. The increase in the Transport deflation was as a result of this reduction as it filtered into the inflation numbers. More recently in December, there was another decrease in local fuel prices and we expect this to exert further downward pressure on Transport inflation, as well as overall CPI.

Since this reduction, international Brent Crude Oil prices have come under renewed pressure and fell a further 16.0 percent, giving yet more room for another reduction in local fuel if prices stabilise around these levels for some time.

International oil supply continues to remain stubbornly strong with both OPEC and non-OPEC producers maximising production. Furthermore, with Iran coming into the picture, things are likely to get worse before they can get better as far as the oil price is concerned. Other components of the CPI basket were generally stable over the past month, recording positive changes of less than 1 percent.

The biggest item in the basket – Food, with a weighting of approximately 22% – has been surprisingly absent among the main contributors to inflation over the year. It recorded a 0.9 percent increase in prices over the 12 months to November. The Housing, Water, Electricity Gas & Other fuels category recorded the biggest rate of price increase over the 12 months at 9.5 percent, mostly driven by increase in the Water supply category which was up 26 percent over the year.

Given the reduction in fuel costs earlier in the month and the delayed effect of the local and regional drought experienced in trickling down into the numbers, we believe the annual inflation rate in December will remain below the 3 percent bottom band.

The favourable exchange rate between the pula and the rand, which limits the extent to which we can import the increasing food inflation from South Africa, will also have a cooling effect on CPI. Inflation for the year to date has averaged 3.0 percent and we believe this level will be maintained for the full 12 months of 2015.

There are a number of risks to this outlook. On the upside, we believe it will be driven by food inflation and a possible increase in the alcohol levy this December. On the downside, the main driver will be the likelihood of another decline in fuel prices given the continued plunging of international oil prices.

Waning local demand, as indicated by the reduction in core inflation which registered a 0.3 percentage decrease to 4.7 percent from the previous month, is also expected to keep pressures on prices within check. Against this background, we believe that propelling economic growth remains the primary objective of the central bank.

We are therefore convinced that the monetary policy will remain accommodative for the foreseeable future. We do not believe that the central bank will reduce rates any further, as the recent reductions have not really propelled credit growth due to other structural hindrances.

TSHEPANG LOETO is an analyst at Investec Asset Management

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BSE upgrades online investor access

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A recent BSE opening bell function.

Botswana Stock Exchange Limited (BSEL) will this year introduce a new clearing and settlement system, as part of efforts to improve operations of the bourse.

Speaking at the seventh opening bell ceremony, Chief Executive Officer, Thapelo Tsheole said the development will help improve liquidity and risk management. In addition, the new settlement system replaces the 2008 system while fast tracking introduction of security borrowing and lending, management settlement guarantee fund, as well as identifiers for companies and instrument.

BSEL has already awarded a contract to a Swedish company to implement the system which is also expected to digitalize Initial Public Offering (IPO), allow electronic voting for listed companies during annual general meetings (AGM) for absent shareholders.

The project, which is expected to take eight months once the two parties sign the deal, is part of efforts to have more online investors access for BSEL. Tsheole also revealed that BSEL website will undergo a revamp this year, allowing it to be more analytic, live feed shares, as they trade.“The tender is already out for the website and mobile application. It is a project that we had hoped to implement last year but because of logistic problems, we could not do it,” said Tsheole.

BSEL further plans to introduce two data display screens at CBD and at the stock exchange.“These will assist with information sharing and keep the market updated,” said Tsheole. Meanwhile, BSEL will not change its Automated Trading System (ATS) until 2022, according to Tsheole.“The system supports our strategy to grow the market and increase the average daily turnover levels to 18.0million per day by 2021,” said Tsheole.

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BSE complies with reporting guidelines

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Botswana Stock Exchange Limited (BSEL) has become the 5th bourse in Africa to comply and publish Environment, Social and Governance (ESG) reporting guidelines.

The development comes a year after BSEL became a partner exchange of the United Nations Sustainable Stock Exchange (SSE) Initiative.“The BSE made a commitment to publish guidance on ESG Reporting. This commitment has been fulfilled.“

We are the 42nd among the 81 SSE Partner Exchanges globally and the 5th in Africa to do this,” said Kgotla Segwe, Market Development Specialist at Botswana Stock Exchange Limited.
Other stock exchanges that have complied with the SSE initiative on the continent are from South Africa, Nigeria, Morocco and Egypt.

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