Botswana's central bank kept its main interest rate unchanged on Thursday, citing continued weakness in the diamond sector and its expectation that inflation will be within its objective range in the medium term.

The decision to keep the rate at 3.5% was the first under the Bank of Botswana's new Governor Lesego Moseki.

"The economy is expected to continue to operate below full capacity. ... This outlook supports maintaining a broadly accommodative monetary policy stance," Moseki told a press conference.

The Southern African country's economy has been under pressure for more than a year because of a prolonged downturn in the global market for diamonds, its key export.

Real gross domestic product contracted 3% in the year to June 2025, a sharper decline than the 0.6% contraction in the previous 12 months.

Inflation is still within the central bank's 3%-6% objective range but has been rising, reaching 3.9% year-on-year in October compared to 3.7% in September.

The Bank of Botswana forecasts inflation will average 5.3% next year, up from an average of 2.7% this year, and believes it is more likely it will overshoot than undershoot that forecast.

At its last monetary policy meeting in October the bank hiked its key rate by 160 basis points to try to narrow the gap with market lending rates, which had been driven higher by a liquidity squeeze linked to the country's economic slump.

It said on Thursday that liquidity conditions had improved.