Namibia’s inflation projected to slow down

Namibia’s rising inflation is expected to taper down towards the end of the year following the stabilisation of the global economy, research firm Simonis Storm has predicted. 

This comes as the Bank of Namibia (BoN) Monetary Policy Committee (MPC) decided to increase the Repo rate by 75 basis points to 6.25% on Wednesday as part of measures to continue anchoring inflation expectations, safeguarding the peg arrangement while meeting the country's international financial obligations, amongst other considerations. 

Simonis Storm Economist Theo Klein said Minutes from the Federal Open Market Committee (FOMC) meeting indicated that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation. 

“This supports the notion that although the rate hiking cycle might end in the first quarter of 2023, interest rates globally and locally will likely remain at elevated levels for a while, before we see rate cuts taking place,” he said. 

However, Klein noted that the repo rate remains low relative to inflation in Namibia and South Africa, suggesting that monetary policy is accommodative at the moment. 

“The gap is narrowing as rates rise and we believe inflation has peaked in July 2022 in South Africa and August 2022 in Namibia. Going forward, we certainly expect inflation to come in lower during the remainder of 2022 and 2023 as well. This is mainly due to observing more global deflationary pressures and the fact that inflation rates will be coming off a high base,” he added. 

The South African Reserve Bank’s Quarterly Projection Model (QPM) estimates a neutral rate of 6.75%, while other economists estimate between 7.25% and 7.50%. The neutral rate is theoretically the interest rate at which monetary policy is neither expansionary nor contractionary, keeping inflation constant. As the repo rate approaches the neutral rate, it could warrant the SARB to be more gradual in the pace of interest rate hikes going forward. 

“The risk of continuing with an aggressive (i.e. front loading) rate hiking cycle in South Africa – and Namibia by implication – is that monetary policy becomes restrictive for an economy not experiencing demand-pull inflationary pressures and having numerous domestic economic growth challenges. This implies that the rate hiking cycle in South Africa – and Namibia – could come to an end by early 2023,” Klein said. 

BoN Governor Johannes !Gawaxab said Namibia's overall inflation for 2022 is now projected to average around 6.1%, up from 5.8% initially projected during the previous MPC meeting. 

“The upward revision is mainly due to expected higher food inflation and a weaker exchange rate,” he said. 

Since the last MPC meeting, year-on-year growth in Private Sector Credit (PSCE) improved to 4.6% in August 2022, from 3.4% recorded in June 2022. 

"Despite this improvement, growth in PSCE generally remains subdued. The increase in PSCE was mainly driven by businesses in the form of short-term credit facilities as well as instalment and leasing credit by corporates in the mining and services sectors. For the first eight months of 2022, growth in PSCE increased to 3.5%, higher than the 2.5% registered during the same period in 2021," said the Governor. 

As at the 30th of September 2022, BoN said the stock of international reserves declined slightly to N$48 billion from N$49.2 billion at the end of July 2022. 

The Bank attributes this decline mainly to portfolio investment outflows and the repayments of foreign loans. Notwithstanding the decline, the international reserves, estimated at 5.6 months of imports, remain sufficient to cover Namibia's international financial obligations.

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Last modified on Sunday, 30 October 2022 22:34

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