THE Bank of Namibia (BON) has announced the reduction of the repo rate from 4.25% to 4.00%, a historic low.
The reduction in the repo rate will make money less expensive to borrow for consumers and businesses, encouraging more spending.
The Monetary Policy Committee (MPC) of the Bank of Namibia has stated that the decision was taken to balance the need for further monetary stimulus in the face of the pandemic-induced weakness in the economy, against the importance to not undermine sound saving and investment decisions in the economy.
This translates to a cumulative 2.50 percentage point reduction in the Repo rate since the beginning of 2020 in Namibia. Albeit this, interest rates for banks in South African are cheaper, with the South African Reserve Bank cutting SA’s repo rate to 3.75% down from 4.25%.
Deputy Governor of the Bank of Namibia, Ebson Uanguta stated that the MPC is of the view that a 4 % repo rate is appropriate to support domestic economic activity while at the same time safeguarding the one-to-one link between the Namibia Dollar and the South African Rand.
Uanguta further added that domestic economic activity declined during the first four months of 2020, relative to 2019.
The contraction was widespread among sectors, including the mining, manufacturing, wholesale and retail trade, transport and the tourism sectors.
A few economic indicators such as local electricity generation and building plans approved, however, showed some improvement during the first four months of 2020, relative to the corresponding period of 2019.
However, the domestic economy is projected to contract further in 2020.
The deputy governor further stated that the average growth in PSCE slowed to 5.8 % during the first four months of 2020, lower than the rate of 6.4 % recorded over the same period in 2019.
“The slowdown in PSCE was due to lower credit demand by businesses. Since the previous MPC meeting, growth in PSCE slowed to 3.7% at the end of April 2020, from 6.7% reported in the previous MPC statement.” Uanguta said.
Touching on the state of international reserves, he stated that on the 31st of May 2020, the stock of international reserves stood at N$33.7 billion, compared to N$33.0 billion reported in the previous MPC statement.
“This amount of international reserves is estimated to cover 5.1 months of imports of goods and services. At this level, the reserves remain sufficient to protect the peg of the Namibia Dollar to the South African Rand and meet the country’s international financial obligations” Uanguta concluded.