It is well known that Botswana’s inflation is affected by domestic demand conditions and other factors such as foreign inflation, the exchange rate, as well as changes in administered prices and taxes. Public expectations of rising or falling inflation also influence pricing behaviour of businesses and wage adjustments.
The Bank then responds by adjusting the Bank Rate and conducting open market operations to affect demand conditions in the economy and, ultimately, the rate of price changes. Therefore, the Bank estimates the impact of various factors in forecasting inflation over the medium term which, in turn, informs monetary policy.