The Bank of Namibia Monetary Policy Committee (MPC) is set to make its third announcement for 2022 on the interest rate decision on Wednesday the 15th June 2022. The MPC increased the repo rate by 25 basis points from 4.0% to 4.25% in their last meeting. The MPC was of the view that the rate is appropriate to safeguard the one-to-one link between the Namibia Dollar and the South African Rand while meeting the country’s international financial obligations. The South Africa Reserve Bank increased its repo rate by 50 basis points in its last meeting held in May 2022 bringing the repo rate to 4.75%. The South Africa Reserve Bank increased its repo rate to safeguard its inflation targeting policy.
Namibia has been experiencing negative real interest rates since October 2021. This is due to the annual inflation rate outstripping the repo rate. Inflation has been hovering above 4% and reached 5.6% in April 2022 (See figure 1 below). Our outlook is that the MPC could follow the South African Reserve Bank's footsteps and increase the repo rate by 50 basis points to protect the currency peg. We are in an interest hike cycle in the short to medium term. This is augmented by high inflation rates that are expected to remain elevated as a result of the continuous external cost-push factors.
Figure 1: Repo Rates, Namibia vs. South Africa, and Namibia’s Inflation rate (January 2019- May 2022)
Source: BON, SA Reserve Bank, NSA & HEI RESEARCH
Background
The Bank of Namibia Monetary Policy Committee (MPC) is set to make its second announcement for 2022 on the interest rate decision on Wednesday the 13th of April 2022. The MPC increased the Repo rate by 25 basis points from 3.75% to 4.0% in their first MPC meeting. The MPC was of the view that the rate is appropriate to safeguard the one-to-one link between the Namibia Dollar and the South African Rand while meeting the country’s international financial obligations (See figure 1 below).
The South Africa Reserve Bank increased its repo rate by 50 basis points since the beginning of the year 2022 to counter inflation. High inflation rates remain a global challenge augmented by surging commodity prices and supply chain bottlenecks reflecting domestic capacity constraints and higher prices for imported goods (See figure 2 below).
Figure 1: Repo Rate, Namibia, South Africa, and China (March 2021-March 2022)
Source: BON, SA Reserve Bank, The People’s Bank of China & HEI Research
Figure 2: Namibia and selected Economies Annual Inflation (February 2021- February 2022)
Source: NSA, Stats SA, Stats China, Stats NZ, Stats Euro Area & HEI Research
Outlook
Given that the South African Reserve Bank indicated a policy path rate of an increase in each quarter for the next three years, we are of the view that the Bank of Namibia may follow the same path to safeguard the one-to-one link between the Namibia Dollar and the South African Rand. However high-interest rates exert pressure on household consumption and as a result, we expect the private sector credit extension for Namibia to remain subdued due to a decline in the demand for credit.
Background
The Bank of Namibia Monetary Policy Committee (MPC) is set to make its first announcement for the year 2022 on the interest rate decision on the 16th of February 2022. The MPC kept the repo rate unchanged at 3.75% since August 2020 as it remained appropriate for supporting the ailing domestic economy at the back of the negative impact of the Covid-19 pandemic, while at the same time safeguarding the one to one link between the Namibian dollar and the South African Rand (see figure 1 below).
During the third quarter of 2021 the domestic economy recorded a growth of 2.4%. The expansion of economic activities in the third quarter of 2021 was observed in almost all the sectors of the economy, with double digits registered in mining and quarrying and hotels and restaurants sectors that recorded growths of 41.9% and 19.5%, respectively.
The annual inflation rate for Namibia continued on an upward trend, reaching up to 3.6% on average for 2021. High inflation rates are linked to higher global producer prices and a rise in commodity prices. This continues to pose a huge risk to the sustainability of the current level of the repo rate. Additionally, the uptake in private sector credit extension has been slow for the domestic economy on the back of the slow recovery in business and consumer confidence. (See figure 2 below).
Figure 1: Repo rate vs. Inflation rate, Namibia (January 2021- January 2022)
Figure 2: Monthly % growth rate of the PSCE, Namibia (Jan-Dec 2021)
Outlook
Given the current variation between the Bank of Namibia and South Africa Reserve Bank, we anticipate for further sustained increases in the repo rate for 2022.
Background
The Bank of Namibia Monetary Policy Committee (MPC) is set to make its fifth announcement on the interest rate decision for 2021 on 20 October 2021. The MPC kept the repo rate unchanged at 3.75% in their last meeting as it remained appropriate to continue supporting the weak domestic economy, while at the same time safeguarding the one-to-one link between the Namibia Dollar and the South African Rand (see figure 1 below). The second quarter of 2021 saw the domestic economy growing with 1.6% and this was a consequence of the base effect.
However, the annual inflation rate for Namibia continues on an upward trend, reaching up to 3.5% on average for 2021. Inflation continues to pose a risk to the sustainability of the current level of the repo rate. Additionally, the private sector credit extension declined to 1.9% for August 2021 from 2.8% recorded for July 2021 due to lower demand for credit.
Figure 1: Repo rate, Namibia, Botswana, and South Africa (September 2019 - September 2021)
Outlook
Our projection is that, the MPC for Namibia will maintain the interest rate at 3.75% as the Central Bank sees it as accommodative. The private sector credit extension for Namibia remains subdued. Individuals and businesses confidence has not returned to the market and hence the subdued credit uptake. Structural reforms and policy support is required for the monetary policy to be effective in order for the domestic economy to be on the recovery path.
Background
The Bank of Namibia Monetary Policy Committee (MPC) is set to make a fourth announcement on the interest rate decision for 2021 on 18 August 2021. The MPC kept the repo rate unchanged since the beginning of the year on the back of the negative impact of Covid 19 pandemic and as an attempt to cushion the sluggish economy. The Global inflation rate, and Sub Sahara had been on the upward trajectory since March 2021. Namibia and South Africa reached 4.1% and 5.2%. (See figure 1).
There is an upside risk to the prices of goods and services in the short to medium term for Namibia and South Africa. The risks emanate from rapid global producer price inflation, food price inflation, commodity prices, and the supply chain disruptions caused by the COVID-19 pandemic.
Since the beginning of the year 2021 the Bank of Namibia kept the at 3.75% to continue supporting the weak domestic economy while safeguarding the one-to-one link between the Namibian dollar. The South Africa Reserve Bank also maintained the interest rate on hold at 3.50% for the sixth consecutive time to support the ailing domestic economy due to the impact of the Covid-19 pandemic. (See figure 2).
Figure 1: Annual inflation rate, Namibia VS South Africa (JAN-JULY 2021)
Figure 2:Repo rate, Namibia VS South Africa (JAN-JULY 2021)
Outlook
We project that the annual inflation rate for Namibia will be on an upward trajectory but remain around the 3-6% South Africa target rate for 2021. Additionally, the private sector credit extension for Namibia remains subdued due to a lack of demand for credit caused by the impact of Covid-19 pandemic. Individuals and businesses remain uncertain on future income and return on investments and thus the hesitancy to take up credit. Our projection is that, the MPC will keep interest rate at 3.75% as it remains accommodative given the economic environment, However the expansionary fiscal policy stimulus and structural reforms are required for the monetary policy to be effective in order to support the sluggish domestic economy at the back of Covid-19.
Background
The Bank of Namibia Monetary Policy Committee (MPC) is set to announce an interest rate decision on the 19 August 2020. The MPC decided to cut the repo rate by 250 basis points since the beginning of the year in an attempt to cushion an ailing economy and as a response to devastating impact of Covid-19,while maintaining the one-to-one link between the Namibian dollar and the South African rand.
Namibia’s repo rate is now at 4.00 percent ,50 basis points higher than that of South Africa, which is at 3.50 percent. The Bank of Namibia has provided relief to commercial banks by undertaking regulatory and policy measures to assist business and households during this time. Central banks around the world have taken decisive measures to intervene in the real economy and increase Government expenditure to fight the pandemic.
Outlook
Our prediction is that there will be no interest rate cut at the next MPC meeting. This is supported by the fact that interest rate cuts are a blunt tool in the face of the current global pandemic. We believe that expansionary fiscal stimulus is required for monetary policy to be effective at this stage of the cycle.
Figure 1: Global Bank Lending Rates
Background
The Bank of Namibia Monetary Policy Committee (MPC) have stuck to their scheduled meeting date of 17 June 2020 to make an announcement on the interest rate. The MPC have cut the interest rate by 225 basis points since the beginning of the year on the back of Covid 19 and as an attempt to cushion an ailing economy. The inflation rate for April slowed to 1.6% which makes it the lowest in over decade and the May inflation rate came in at 2.1%. Due to weak domestic economic activity and depressed demand, there’s no upside risk to inflation in the medium to long term. Our projected outlook is that inflation will peak around 3% for 2020. The current repo rate stands at 4.25%.
The South Africa Reserve Bank has cut interest rate by 250 basis points since the turn of 2020 and have called for urgent MPC meetings in attempting to cushion the impact of Covid 19 on the economy from time to time. The current repo rate in South Africa is at 3.75%. Our outlook indicates that there’s two repo rate cuts of 25-50 basis points in the next two quarters of 2020.The anticipated economic contraction in the South African economy and protracted recovery will keep inflation well below the midpoint of the target range for 2020 in our view.
What is also becoming clear is that the Monetary policy in its current form cannot on its own improve the potential growth rate of the economy. There is more to be done which include structural reforms to assist with potential growth and job creation. Other Central Banks like the Bank of England has extended facilities to help government cash flows to provide a temporary short-term source of additional funding in addressing the widespread economic downturn in the global economy.
The Botswana interest rate has been at record lows due to benevolent inflation levels and modest domestic demand. Botswana’s central bank reduced its benchmark interest rate by 50 basis points to 4.25 % as part of a number of measures to mitigate the economic impact of the coronavirus outbreak.
MPC Decision
We anticipate a rate cut of 50 basis points to further ease the burden on households and business. The GDP for Q1 contracted with 0.8% and we anticipate the full effect of Covid 19 measures to the economy to be felt in Q2. This will further revise the growth outlook for 2020 downwards to possible a double digit decline. There is an emerging global view that interest rate cuts are a blunt instrument to deal with the current pandemic, and more is expected from Central Banks.
Figure 1: Costs of Bonds in Namibian Dollar- 15 June 2020
