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Bank of Namibia likely to cut repo rate – Capricorn

Bank of Namibia likely to cut repo rate – Capricorn

Business Reporter

THE Capricorn Asset Management (CAM) firm has stated that the  monetary policy will be expected to provide relief and stimulus to economies in an environment where fiscal policy can do very little, with ideal speculations to see governments loosen the purse strings, borrow more, cut taxes or spend more.

Giving an economic update amidst a perpetually declining Namibian economy, Floris Bergh, Chief Economist at CAM, stated that weakness in the economy is becoming more widespread.

Pictured: Floris Bergh, Chief Economist at CAM. Photo: contributed

“Weakening economic growth and downwardly pegged inflation provides room for monetary policy makers to consider their policy stances.  Central Banks are facing an environment that is calling for lower, rather than higher interest rates. In the USA, the Fed, and in Europe, the ECB, have halted talk of a tighter policy.  In the UK, the BOE is in a Brexit straitjacket. In Japan, the BoJ, and in China, “ Bergh summarised.

He added that the SARB has explicitly put a cut on the forecast horizon, initially by the first quarter of 2020.

“However, we now believe they will cut rates at the July meeting and the Bank of Namibia will cut in its August meeting,” he stated.

Bergh added that because we are at the limits of fiscal ratios, while revenue is being severely constrained by economic weaknesses, Namibia cannot afford it.

Similarly, the SA Treasury is challenged by fiscal slippage in a contracting economy, while facing a credit downgrade later this year if current trends continue.

“Our hope remains that globally, regionally and domestically, increased cohesion of policy making will be achieved, in that monetary policy alone is not expected to make all the difference, but that a comprehensive battle plan can be established that will benefit all,” Bergh stated.

Giving an update on different sectors of industry, Bergh stated that there is severe shrinkage in the sales of vehicles, slow credit growth and a construction sector hard hit  in conjunction with a sharp slowdown in the property market.

Bergh added that the mining sector has now also contracted in the first quarter, following a two-year period of strong growth.

“These conditions have revived fears of deflation globally and has led to a sharp moderation in inflation expectations domestically.  In our view inflation is likely to remain in the 4% to 5% range in both Namibia and SA for the foreseeable future, which is until 2021.  It could even fall below these levels at times,“ Bergh added.

The economist, however, said that the one factor to watch is maize prices, since they recently sharply rose in the US and in SA.  If sustained, this could put upward pressure in the food price chain, food, oil and the exchange rate remains, as ever, volatility drivers of inflation, Bergh said.

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