THE Monetary Policy Committee (MPC) of the Bank of Namibia has decided to reduce the repo rate by another 25 basis points from 4.00% to 3.75%.
This is in line with analyst projections that the central bank would make a similar move as the South African Reserve Bank (SARB) which recently cut their repo rate 25 basis points, to 3.5% a year, from 3.75%.
The repo rate determines the interest rate at which the central bank lends money to commercial banks. The lower the rate, the lower the interest people pay their banks on loans.
The Governor of the Bank of Namibia, Johannes !Gawaxab stated that the MPC is of the view that at this level, the rate is appropriate to continue supporting domestic economic activity while at the same time safeguarding the one-to-one link between the Namibia dollar and the South African rand.
!Gawaxab said that since the previous MPC meeting, inflation in key monitored economies remained well contained. “All monitored Advanced Economies (AEs) central banks maintained their accommodative monetary policy stances and implementation of non-conventional monetary measures to ease credit flow and support their economies. In the Emerging Markets and Developing Economies, EMDEs, most of the monitored central banks reduced their policy rates at their most recent meetings, except for China that maintained its policy rate.” !Gawaxab said.
He added that the Domestic economic activity contracted during the first half of 2020 and is projected to register an overall contraction for 2020. The rate of inflation remained low for the first seven months, while the Private Sector Credit Extension (PSCE) growth declined during the first 6 months of 2020.
“The COVID-19 pandemic has caused domestic economic activity to contract severely during the first 6 months of 2020. The slump was reflected in sectors such as mining, agriculture, manufacturing, construction, tourism, wholesale and retail trade as well as transport and storage.” !Gawaxab said.
Activity in the telecommunication and local electricity generation subsectors, however showed some improvements in the first half of 2020 compared to the same period in 2019.
The domestic economy is projected to contract by 7.8% in 2020 before a moderate recovery of 2.1% in 2021.
Domestic inflation remained at historic low level. Annual average inflation declined to 2.1% during the first seven months of 2020 compared to 4.2% in the corresponding period of 2019. The lower inflation was mainly due to the decline in transport, housing and food inflation. On a monthly basis, the inflation rate remained unchanged.
As at the 31st of July 2020, the stock of international reserves stood at N$35.4 billion compared to N$33.7 billion reported in June. The amount of international reserves is estimated to cover 5.3 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 countries international financial obligations.