September 22, 2024
Finance

BoN surprises with bigger rate hike than forecast

June 14, 2023
BoN surprises with bigger rate hike than forecast

The Bank of Namibia’s Monetary Policy Committee raised the repo rate by 50 basis points to 7.75% on Wednesday ahead of a 25 basis points increase forecasted by analysts.

This comes after the Reserve Bank of South Africa increased the repo rate by 50 basis points last month.

The Bank of Namibia Governor Johannes !Gawaxab said the hike of the repo rate is to continue safeguarding the peg between the Namibia Dollar and the South African Rand and anchoring inflation expectations, while simultaneously supporting the domestic economy.

“The MPC decided to increase the Repo rate by 50 basis points to 7.75 percent, with immediate effect. This decision was taken following a comprehensive review of global, regional and domestic economic developments” said !Gawaxab.

Simonis Storm Economist Theo Klein had forecasted a 25 basis points hike due to a past pattern of MPC members favoring a more conservative approach.

"In the past, one out of five MPC members were always in favour of hiking in step with the Reserve Bank of South Africa, with the majority of MPC members favouring a more conservative approach. If this sentiment has not changed amongst MPC members, we believe a 25 basis point hike to be more realistic," Klein said. 

However, Old Mutual Investment Group Namibia’s Assistant Portfolio Manager Tumelo Thudinyane said the increase is in line with their expectations.

“Given the backdrop of inflation, which increased from 6.1% in April to 6.3% in May, this is in line with our expectations. Although the interest rate differential between Namibia and South Africa is effectively lowered, it still remains in favor of South Africa from an interest-bearing investment perspective,” said Thudinyane.

First National Bank Economist Ruusa Nandago said the increase in the interest rate puts pressure on disposable incomes and the ability to service debts. 

“This might mean that individuals would change their behaviour in terms of their consumption patterns by redirecting expenditure away from luxuries or non-necessity,” she said. 

She added individuals who have savings and investments on the other hand are expected to benefit from an increase in rates as they earn more interest on these products and services.

Meanwhile, !Gawaxab noted that the domestic economy has shown signs of improvement since the last MPC meeting, particularly in sectors such as mining, manufacturing, wholesale and retail trade, communication, and tourism.

However, the real GDP growth rate is projected to decline in 2023.

"We expect real GDP growth to slow down to 3.0 percent in 2023, compared to .6 percent in 2022, mainly due to slower growth in primary and secondary industries," he said.

!Gawaxab noted that on the external front, Namibia's trade deficit narrowed by 19.9% to N$9.4 billion during the first four months of 2023, compared to the same period in 2022. 

“The improved trade balance was on account of higher export earnings from uranium, diamonds, gold and fish reflecting a rise in volumes exported as well as the depreciation of the Namibia Dollar/Rand exchange rate," said the Governor.

Inflation remained elevated relative to the previous MPC meeting.

“Namibia's average inflation rate rose to 6.8 percent during the first five months of 2023 compared to 4.9% during the corresponding period in 2022,” he said.

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Last modified on Thursday, 15 June 2023 18:13
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