Inflation to stay elevated until mid-2027 before easing

Inflation in Botswana is expected to remain high over the coming six months before easing significantly by the second quarter of 2027, according to updated forecasts from the Bank of Botswana.

The central bank’s August 2026 Monetary Policy report projects that inflation will stay above the upper limit of its 3 to 6 percent target range through the final quarter of 2026 and the first quarter of 2027. It is then anticipated to return to within the target band by mid-2027.

In the second quarter of 2026, inflation surged to 10.57 percent, more than doubling the 4.1 percent recorded in the first quarter and far exceeding the bank’s target. This sharp rise was largely driven by increases in domestic fuel prices, public transport fares, and medical aid premiums.

While inflation is expected to begin cooling in the third quarter of 2026, it will likely remain above the bank’s target range due to ongoing pressures from higher fuel prices, a recent electricity tariff hike, and related cost increases. The bank has revised its inflation forecasts downward from June, now projecting an average rate of 8.9 percent for Q3 2026, down from 10.8 percent previously, 8.0 percent for Q4 2026, and 7.6 percent in Q1 2027.

“The Monetary Policy Committee anticipates inflation will stay above the target range into early 2027, primarily driven by supply-side factors including fuel and electricity costs,” the bank said. It expects inflation to average 7.9 percent in 2026 before easing to 4.9 percent in 2027.

Inflation is forecast to fall to 2.9 percent in the second quarter of 2027, remaining within the bank’s target range throughout the year. The Bank of Botswana attributes this expected moderation to its current monetary policy, subdued domestic demand, and the fading impact of earlier price increases. The projection also reflects a 2.3 percentage point reduction in inflation following a domestic fuel price cut in July 2026, as well as adjustments for trading partner inflation, exchange rate movements, and global food and oil price trends.

Analysts at the bank highlighted a potential benefit from South Africa’s recent shift in its inflation target. In November 2025, South Africa lowered its inflation target range from 3 to 6 percent to a narrower 3 percent with a ±1 percentage point tolerance. Given Botswana’s heavy reliance on imports from South Africa, the move is expected to help ease inflationary pressures domestically.

Still, analysts caution that risks remain. They point to the possibility of inflation exceeding current forecasts due to second-round effects from rising fuel prices and electricity tariffs. Ongoing restrictions on livestock movement and slaughter due to Foot and Mouth disease could also drive short-term food inflation. Additionally, the anticipated El Niño weather pattern threatens droughts, heatwaves, and heavy rains that could disrupt agricultural output and push food prices higher. Rising costs for oil, gas, fertilizers, and industrial inputs amid Middle East conflicts and global trade tensions present further upside risks to inflation in Botswana.

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