In line with recent developments in the region, Namibia’s central bank is anticipated to increase its repurchase rate by 25 basis points (bps) to 7.50 percent in the upcoming mid-June Monetary Policy announcement. This move comes after the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) declared a 50 bps hike, pushing the repo rate to 8.25 percent, marking a 14-year high.
Financial experts have analyzed the situation and predict that the Bank of Namibia will align with its South African counterpart, albeit with a more conservative approach. Theo Klein, an economist from Simonis Storm Securities, an investment research firm, explained that historically, one out of five MPC members supported a simultaneous increase in line with South Africa, while the majority favored a more cautious stance. Therefore, Klein believes that a 25 bps hike is more realistic for Namibia’s monetary policy adjustment.
Klein further added that Namibia has previously allowed its repo rate to deviate from South Africa’s when foreign currency reserves were robust. This suggests that Namibia’s repo rate is likely to remain lower than that of South Africa, indicating a preference for a differentiated approach.
Supporting this view, Josef Sheehama, an independent economic and business researcher, also expects Namibia’s MPC to follow South Africa’s lead with a 25 bps increase. Sheehama emphasised that the decision reflects the central bank’s ongoing belief that the current repo rate is appropriate to support Namibia’s still weak domestic economy while safeguarding the Namibian dollar’s one-to-one peg to the South African rand.
Recent data shows that Namibia’s average inflation stabilized at 6.1 percent in April, compared to 7.20 percent in March. Sheehama believes that the deterioration in foreign exchange rates, particularly the Namibia dollar to U.S. dollar rate, which now stands at 19.7768, will further incentivize the Bank of Namibia to tighten its monetary policy.
The rise in food prices has been identified as a concern for both the global and local economies, with Sheehama noting the impact on Namibians due to the country’s heavy reliance on imports. Increases in electricity, gas, fuel, food, and transport costs have contributed to inflationary pressures. Additionally, the depreciation of the Namibian dollar is eroding confidence and adding to pricing pressures. Sheehama expects these factors to reflect in June’s inflation figures, further dampening the inflation outlook.
Despite these challenges, Namibia’s economy is projected to continue its rebound, albeit at a slower rate, as policy stimulus diminishes and terms of trade retreat from recent record highs.
As the Monetary Policy announcement approaches, all eyes will be on the Bank of Namibia’s decision, which will have a significant impact on the country’s economic trajectory. With a potential 25 bps increase, the central bank aims to strike a delicate balance between stimulating economic growth and preserving stability in the face of inflationary pressures and currency fluctuations.
