BoN hikes repo rate by 400bps in 18 months

October 25, 2023

 The Bank of Namibia on Wednesday decided to leave rates unchanged after the Monetary Policy Committee (MPC) met for the fifth time this year. The repo rate remains at 7.75%, and the prime rate at 11.50%.

This comes after the current rate hiking cycle has been exceptionally aggressive as the repo rate increased by 400bps in 18 months, according to Simonis Storm researcher Angelique Bock.

She noted that domestic financial conditions have tightened due to the recent increase in interest rates.

“It remains unaccommodating for individuals with limited means, further diminishing the affordability of loans for many. Although there has not been a rate hike at the past two MPC meetings, we only expect rate cuts in the second half of 2024," she said.

Bock said the decision to keep rates unchanged is primarily rooted in the preservation of the currency peg between the Namibia dollar and the South African rand.

She said this step is vital for ensuring a steady influx of imports to maintain stable prices.

Central Bank Governor Johannes !Gawaxab said as of 30 September 2023, the stock of international reserves edged lower at N$53.8 billion compared to N$55.6 billion recorded at the end of August 2023 and the N$54.2 billion reported at the previous MPC meeting.

"Overall, despite the interest rate differential between South Africa and Namibia, capital flows have remained orderly with no notable speculative behaviour, with the decline in the official reserves predominantly due to net commercial bank outflows and foreign payments by the Government," he said.

The Governor noted that the stock of international reserves is estimated to cover 5.6 months of imports, sufficient to support the currency peg between the Namibia dollar and the South African rand and meet the country’s international financial obligations. 

Meanwhile, Namibia’s external merchandise trade deficit narrowed by 7.9 % to N$21.8 billion during the first eight months of 2023 compared to the same period in 2022, as export earnings continued to grow faster than import payments.

The central bank attributes the rise in export earnings to increases in diamond, gold, uranium and fish export volumes supported by the depreciation of the Namibia dollar/rand exchange rate.

This comes as Namibia’s real gross domestic product growth slowed during the second quarter of 2023, but economic activity remained firm year-to-date (YTD).

Inflation edged up last month, while Private Sector Credit Extension growth remained weak, averaging 2.7% YTD, compared to 3.5% during the same period last year.

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Last modified on Friday, 27 October 2023 09:08

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