International reserves enough to hold currency peg
THE Monetary Policy Committee (MPC) of the Bank of Namibia (BoN) left the Repo rate unchanged at 6.75% contrary to expectations by analysts that the central bank will follow the South African Reserves Banks recent increase of its repo by 25 basis points to 7%.
Speaking at the policy announcement, the Governor of the Bank of Namibia, Iipumbu Shiimi, stated that since the previous MPC meeting in October 2018, most central banks in both the Advanced Economies (AEs), and Emerging Market and Developing Economies (EMDEs) left their policy rates unchanged at their most recent monetary policy committee meetings.
The exception was the South African Reserve Bank, which raised its repo rate in November 2018.
Shiimi further highlighted that Private Sector Credit Extension (PSCE) growth continued to be slow, while the stock of international reserves edged lower, but remained sufficient to support the currency peg.
Domestic economic activity remained weak during the first ten months of 2018, although some sectors showed signs of improvement. Activities in sectors such as agriculture and wholesale and retail trade continued to decline, although there were notable improvements in sectors such as mining, transport and communication, as well as manufacturing. The domestic economy is expected to remain weak for 2018 as a whole.
Annual inflation fell to an average of 4.1% for the first ten months of 2018 from 6.4% in the corresponding period of 2017.
Since the previous MPC meeting, however, inflation has been trending upward from 4.4% in August 2018 to 4.8% in September and 5.1% in October, mainly due to rising fuel prices.
Shiimi noted that recent declines in fuel prices, however, suggest that the risk of further upward pressure on inflation from this source has been reduced considerably. Overall inflation is estimated to average around 4.3% in 2018 and projected at 5.4% for 2019.
Annual growth in PSCE slowed during the first ten months of 2018, compared to the corresponding period in 2017. The average annual growth rate of PSCE stood at 5.9%, lower than the 7.0% recorded over the same period in 2017. The slower growth in PSCE was due to reduced demand for credit by both the household and corporate sectors, especially for mortgage, overdraft and installment credit.
Shiimi further noted that as of 31 October 2018, the stock of international reserves stood at N$31.1 billion, from N$32.5 billion reported in the previous MPC statement.
He stated that this level of international reserves is estimated to cover 4.2 months of imports of goods and services.
Shiimi further stressed that at this level, the reserves are sufficient to protect the peg of the Namibia Dollar to the Rand, as well as meeting the country’s international financial obligations.