November 01, 2024
Finance

Namibia should expect another rate hike

June 03, 2022
Namibia should expect another rate hike

Bank of Namibia Governor Johannes !Gawaxab has hinted that another repo rate hike is "likely" when the bank’s Monetary Policy Committee meets on June 15, 2022.

The anticipated third interest rate hike in six months is aimed at protecting the country’s exchange rate peg to the Rand and begin normalising interest rates.

The BoN Monetary Policy Committee raised the repo rate by 25 basis points in February 2022, followed by another 25 basis point increase in April 2022, a development which the Governor believes is "likely to continue in order to protect the peg and prevent capital flight to other member states of the Common Monetary Area (CMA)."

One of the Bank of Namibia's primary mandates is to contain inflation and ensure sustainable development through its monetary policy stance.

!Gawaxab stated that four major developments are dominating the global and domestic economies: the Russia-Ukraine war, global interest rate increases, the re-emergence of COVID-19, and the threat of another global economic recession.

This was after the IMF had reduced global growth projections for 2022 from 4.3 percent to 3.6 percent in April of this year, owing primarily to the war and supply chain disruptions.

Rising food and energy prices will dampen prospects for a stronger recovery in growth, likely exacerbating unemployment, poverty, and inequality in the country, according to !Gawaxab.

This comes as Namibian economic analysts predicted last month that the country would see another interest rate hike in June, which could be higher than previously predicted.

“Given that Namibian interest rates are closely aligned to those of the SARB’s Bank of Namibia will likely follow the interest rate decision by the SARB in the June meeting,” FNB Namibia Group Economist, Ruusa Nandago told The Brief.

She did, however, warn that if the Bank of Namibia's Monetary Policy Committee does not follow the South African Reserve Bank's (SARB) 50 basis point hike to 4.75 percent, the largest since January 2016, the country's peg with the Rand will suffer.

“Should they choose not to follow it might result in capital outflows to South Africa where interest rates are higher and consequently a decline in foreign exchange reserves which is detrimental to the peg. If they choose not to follow then they will have to find other levers to prevent capital flows,” Nandago said.

Simonis Storm Economist Theo Klein stated that he expects a 50bps hike as the Forward Rate Agreement (FRA) curve factored this in.

“Also, SARB’s MPC did mention that they might support a 50bps hike in their market commentary last month. We expect Bank of Namibia to follow SARB by also hiking 50bps at their next meeting on 15 June,” he said.

Klein stated that the narrowing interest rate differential between the United States and South Africa has resulted in a weaker Rand, a development that is inflationary given South Africa and Namibia's high import dependency.

Adding that, “we see the rationale for interest rate hikes due to Rand weakness, as inflation is driven by supply side factors which are not influenced by interest rates. By raising interest rates and enticing foreign capital to remain in South Africa, Rand depreciation can be limited to an extent, which in turn would limit inflation somewhat.”

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Last modified on Monday, 06 June 2022 19:06
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