Business Reporter
The Monetary Policy Committee (MPC) of the Bank of Namibia (BoN) has cut the repo rate by 100 basis points.
The decision to lower the lending rate to 4.25% was made in order to support weak domestic economic activity and provide short term relief amidst the extraordinary circumstances arising from the COVID-19 pandemic.
During the announcement of the repo rate the Deputy Governor of the BoN, Ebson Uanguta said that global economic activity is projected to contract significantly in 2020 mainly on account of the COVID-19 pandemic.
Since the previous MPC meeting in March, inflation rates in most key monitored economies declined, while monetary policy stances became even more accommodative.
With regard to domestic economic activity, Uanguta said that the economy slowed during the first three months of 2020 mainly off the back of sectors such as mining, wholesale, retail and trade, manufacturing and tourism. A sharp decline was especially noted in tourist arrivals.
Uanguta further said that despite the accommodative lending rates, the credit extended to the private sector remains subdued. Currently, Private Sector Credit Extension (PSCE) stands at 6.7% compared to 7.2% recorded in December.
The deputy governor has however noted that since the last repo rate cut of the central bank in March 2020, positive developments have been noted.
“The Bank in its role as the regulator of commercial banks has undertaken policy and regulatory changes to allow commercial banks to help individuals and businesses during this extraordinary time. Their efforts together with government’s recently announced stimulus package are believed to help mitigate the impact of COVID-19 in vulnerable sectors, people’s livelihoods and the economy,” Uanguta said.
On Tuesday the South African Reserve Bank (SARB) also reduced its repo rate by a 100 point basis to 4.25%. SARB at its Emergency repo rate cut announcement projected the South African economy to contract by 6.1% compared to -0.2% expected a few weeks ago.
The stance will not compromise the one to one link between the Namibian Dollar and the South African Rand.
The global economy is projected to contract by 3.0 % in 2020. much worse than the 0.1% negative growth during the 2008/2009 global financial crisis. The projected contraction is mainly on the back COVID-19 pandemic which has caused severe economic disruptions. In the Advanced Economies (AEs), the growth is projected to contract by 6.1 percent in 2020, while the Emerging Markets and Developing Economies (EMDEs) are projected to contract by 1.0 % in 2020. Key risks to the global outlook remain and include uncertainty regarding the pandemic, and the extent of supply disruptions.
