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
