Botswana’s central bank raised its benchmark interest rate to a 43-month high of 3.5% in October 2025 — the first rate hike since March 2022 — as inflation accelerated and liquidity pressures deepened in the economy.
The 160-basis-point increase from 1.9% in August marks a shift in the Bank of Botswana’s monetary stance after more than two years of steady easing.
The Monetary Policy Committee said the move aims to align the policy rate more closely with market lending rates, which have surged amid a tightening liquidity environment and slowing economic growth.
“The rate increase is intended to strengthen monetary policy transmission,” Central Bank Governor Cornelius Dekop said at a press briefing in Gaborone.
He added that commercial banks have been instructed not to raise their prime lending rates further, a directive aimed at preventing additional pressure on borrowers and the broader economy.
Botswana’s economy — heavily dependent on diamonds, which account for around 90% of export earnings — has been struggling with weak global demand and falling prices. The downturn in the diamond market has squeezed foreign exchange inflows, constrained liquidity, and driven up borrowing costs.
The central bank noted that banks have already raised their lending rates in recent months as liquidity dried up, worsened by rising government borrowing to plug widening fiscal deficits.
The rate decision follows a downgrade by Moody’s Investors Service earlier this month, which cut Botswana’s sovereign rating to Baa1, citing the government’s limited fiscal flexibility and difficulties adjusting to the diamond industry slump.
Inflation rose to 3.7% year-on-year in September, up from 3.3% in August — the highest in 13 months — though still within the central bank’s 3%–6% target band. The acceleration was driven mainly by higher food and utility prices.
The Bank of Botswana expects inflation to average 2.7% in 2025 but warns that it could rise to around 5.9% next year, reflecting both domestic cost pressures and external risks, such as global commodity price volatility.
