Category: MPC

The Bank of Namibia Monetary Policy Committee (MPC) is set to make its third announcement for 2023 on the interest rate decision today the 14^th of June 2023. The MPC increased the repo rate by 25 basis points during their second meeting on the 13^th of April 2023, bringing the repo rate to 7.25%. Additionally, the South Africa Reserve Bank increased its repo rate by 50 basis points in its last meeting held in March 2023 bringing the repo rate to 8.25%. This translated into a spread of 100 basis points between Namibia and South Africa’s repo rates. (Figure 1)

Our outlook is that the Bank of Namibia’s MPC could increase the repo rate by 25 basis points to continue protecting the currency peg and to control inflation for price stability. We expect the interest rate hike cycle to persist in the short term. This is augmented by the lingering upside inflation risks in South Africa as food price inflation continues to be elevated, as the risk of drier weather conditions in coming months has increased. Load-shedding may additionally have broader price effects on the cost of doing business and the cost of living. Non-performing loans at the banks will rise as a result of the ongoing increase in interest rates. As such banks will start to take the variation in the rise in non-performing loans and the returns on interest rates into account.

Figure 1: Repo and Interest Rates, Namibia vs. South Africa (January 2019- April 2023)

Source: BoN & HEI Research

The South African bank’s monetary policy committee opted to increasing the repurchase rate by 0.25% to 7.25%. This decision was strongly motivated by finding the balance between inflation risks and the potential economic slowdown climate. The revised repurchase rate remains supportive of credit demand in the near term while raising rates to levels more consistent with the current view of inflation and its risks to it. The SARB’s MPC aims to anchor inflation expectations more firmly around the midpoint of the target band (3% -6%) which currently stands at 7.2%. The Governor of the Reserve Bank is of the view that this decision is aimed at maintaining the inflation target sustainably over time. Guiding inflation back towards the mid-point of the target band can reduce the economic costs of high inflation and enable lower interest rates in the future according to SARB. Economic and financial conditions are expected to remain more on the upside of risk for the foreseeable future.

Figure 1: Global real interest rates vs. Inflation as at 27 January 2023

Source: COUNTRY’S STATISTICS AGENCY, CENTRAL BANKS & HEI RESEARCH

The Bank of Namibia Monetary Policy Committee (MPC) is scheduled to make its last announcement for 2022 on the interest rate decision tomorrow, the 30^th of November 2022.

The committee increased the repo rate by 75 basis points to 6.25% in their last meeting held in October 2022. The MPC was of the view that the rate will continue safeguarding the peg arrangement and thus anchoring inflation expectations while meeting the country’s international financial obligations. South Africa’s reserve bank increased its repo rate by 75 basis points in their last meeting held last week, on the 24^th of November 2022.

The Bank of Namibia MPC increased the repo rate by 250 basis points year to date while the South African Reserve Bank increased by 300 basis points

The repo rate currently stands at 6.25%. The Bank of Namibia’s MPC indicated that the repo rate remained supportive of credit demand in the near term, and they were of the view that hiking the rate will be more consistent with the current view of inflation risks. 

Although inflation has shown signs of slowing down over the past 3 months ever since peaking at 7.3% in August 2022, the current inflation levels still remain significantly too high, with average annual inflation for 2022(January to October) standing at 5.9% compared to 3.6% recorded during the period in 2021.

Our outlook is that the MPC could increase the repo rate by 75 basis points following South Africa’s path. The decision will continue to contain the elevated global and domestic inflationary pressures, and the fragile economic recovery and maintain the need to safeguard the currency peg while meeting the country’s international financial obligations.

Figure 1: Repo Rates and Inflation Rates, Namibia vs. South Africa (January - November 2022)

The Bank of Namibia Monetary Policy Committee (MPC) is set to make its fifth announcement for 2022 on the interest rate decision today the 26^th of October 2022. The Bank of Namibia MPC increased the repo rate by 150 basis points since the beginning of the year 2022 while the South African Reserve Bank increased by 250 basis points. The committee increased the repo rate to 5.50% in their last meeting held in August 2022. The MPC was of the view that the rate will continue safeguarding the peg arrangement and thus anchoring inflation expectations while meeting the country’s international financial obligations. South Africa’s reserve bank increased its repo rate by 75 basis points in their last meeting held in September 2022. The repo rate currently stands at 6.25%. The MPC indicated that the repo rate remained supportive of credit demand in the near term, and they were of the view that hiking the rate will be more consistent with the current view of inflation risks. 

Although the Namibian economy showed signs of improvement during the first two quarters of 2022 by recording an average growth of 5.4%, the country’s interest rates have been on an upward trajectory since the beginning of the year (See figure 1 below). Higher-than-expected inflation has pushed major central banks including the Bank of Namibia to accelerate the normalization of monetary policy rates, tightening global financial conditions and soaring risk profiles of economies needing foreign capital. There remains an upside inflationary outlook risk,  augmented by global commodities prices which could surprise again on the upside given the high uncertainty about the impact of the war in Ukraine, the continuous decline in OPEC+ countries’ production output, and the global recession concerns.

Our outlook is that the MPC could increase the repo rate by 75 basis points following South Africa’s path. The decision will continue to contain the elevated global and domestic inflationary pressures, and the fragile economic recovery and maintain the need to safeguard the currency peg while meeting the country’s international financial obligations.

Figure 1: Repo Rates and Inflation Rates, Namibia vs. South Africa (January- September 2022)

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 15^th 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 13^th 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 16^th 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.