Business Reporter
THE Bank of Namibia (BoN) has raised the repo rate by 25 basis points from 7.00% to 7.25%.
The increase in the repo rate effectively brings the prime lending rate to 11.00%.
Johannes !Gawaxab, the Governor of the Bank of Namibia, explained that the decision was taken to contain inflationary pressures, stem their second-round effects and anchor inflation expectations.
“The decision is also deemed appropriate to safeguard the one-to-one link between the Namibian Dollar and the South African Rand. Moreover, this monetary policy stance will take the current negative real policy interest rate to a positive rate. The increase in the rate is nevertheless of moderate proportion to support the domestic economic recovery,” !Gawaxab said.
Touching on the domestic economy, the governor explained that annual growth in Namibia’s real Gross Domestic Product (GDP) rose to 4.6 % in 2022 from 3.5 % in 2021.
“The expansion in domestic economic activity was on account of stronger growth rates in the primary and tertiary industries as well as a rebound in the secondary industry. Since the last Monetary Policy Committee (MPC) meeting, domestic economic activity has continued to improve, primarily observed in sectors such as mining, manufacturing, transport, communication, tourism as well as wholesale and retail trade. Activity in the construction sector, however, continued to decline in line with the subdued government and private sector work. Going forward, real GDP growth is projected to slow down to 3.0% in 2023, due to the anticipated moderation in momentum in the primary and secondary industries,” the governor said.
He added that risks to the domestic economic outlook remain and can emanate from weakening global economic activity, tightening of monetary policy globally and persistent inflation, while internal risks include water supply interruptions, particularly at the coastal towns, and the looming drought.
Inflation has deteriorated since the last MPC meeting. Namibia’s average inflation rose to 7.1% during the first three months of 2023 compared to 4.5% during the corresponding period in 2022. The rise in overall inflation was predominantly driven by food and transport inflation.
Since the last MPC meeting, inflationary pressures in the monitored economies continued to moderate, but remained elevated. Among the Advanced Economies, inflation eased in the United States (US) and Euro area, but it increased in the United Kingdom (UK). Likewise, inflation rates in the key monitored Emerging Markets and Developing Economies (EMDEs) moderated most recently, except in South Africa where it increased slightly. Going forward, global inflation is expected to generally remain sticky, despite moderating somewhat.
!Gawaxab explained that most monitored central banks continued to increase policy rates at their latest monetary policy meetings, albeit at a slower pace.
“The South African Reserve Bank, however, raised its policy rate by 50 basis points in March 2023, compared to 25 basis points at the previous meeting. On the other hand, the central banks of Japan, China, Russia and Brazil maintained their policy rates,” he shared.
As of the 31st of March 2023, the stock of international reserves increased to N$48.5 billion, from N$47.4 billion in February 2023. The governor of the central bank stated that the rise in the level of international reserves was driven by the depreciation of the Namibian Dollar against the US Dollar. At this level, the stock of international reserves is estimated to cover 5.1 months of imports.
“This remains adequate to support the currency peg between the Namibian Dollar and the South African Rand and meet the country’s international financial obligations. As on the 14th of April 2023, the foreign exchange reserves increased further to levels above N$50 billion, driven by higher SACU receipts, diamond sales and foreign direct investment inflow in the manufacturing sector. Against this background, the MPC decided to increase the Repo rate by 25 basis points to 7.25 %. The Bank will continue to monitor these developments and their potential effects on the domestic economy and will act appropriately, in line with its mandate to ensure price stability in the interest of sustainable economic growth and development of the country,” !Gawaxab said.
