Bank of Botswana sharply raised its benchmark interest rate to 3.5% from 1.9% on Thursday, October 30, 2025, in a move to contain surging interbank lending rates fueled by tight liquidity and a slowing economy.
Commercial banks have been raising lending rates for months as liquidity dries up, a situation linked to falling diamond revenues, the backbone of Botswana’s economy, and increased government borrowing to finance the budget deficit. The central bank said the hike aims to restore control over monetary policy and stabilize the financial system.
Governor Cornelius Dekop said the rate increase is intended to improve the transmission of monetary policy and stabilize the financial system. He also urged commercial banks not to pass on the rise to customers through higher base lending rates.
Once regarded as a model of economic stability in southern Africa, Botswana is facing a difficult period. After a contraction in GDP in 2024, the economy is expected to shrink again this year, according to official forecasts.
Moody’s recently downgraded the country’s sovereign credit rating, citing slow government adaptation to the diamond sector downturn and rising public debt levels.
Inflation climbed to 3.7% in September from 1.4% in August, still within the central bank’s 3-6% target range. The Bank of Botswana expects inflation to accelerate to about 6% in 2026.
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