Repo rate to remain unchanged
A local economist believes the Bank of Namibia will leave the repo rate unchanged at 6% during the first half of this year as the economy struggles with the adverse effects of a global economic slowdown.
Commenting after the Central Bureau of Statistics announced this week that the annual inflation rate had jumped to 7.4% in February from 6.6% the previous month, Capricorn Group economist, John Steytler said that the central bank had no choice but to leave the repo rate unchanged. He said: “As the Namibian economy struggles with the adverse effects of slow economic growth plaguing most of the globe, we expect the central bank to continue on its expansionary monetary path by maintaining the interest rate at 6% for at least the first half of 2012.”
At 7.4%, the February annual inflation rate was at its highest peak since August 2009 mainly driven by food and transport inflation. Food price inflation increased slightly to 9.8 % from 9.3% in January. Inflation increased across almost all food groups including oils and fats, meat and vegetables. The exception was the annual inflation of milk, cheese and eggs, which decreased from a high of 6.3% in January to 3.8% in February.
Transport inflation increased from 6.9% in January to 8.1% in February as the global oil price continues to be strongly affected by geopolitical events, namely concerns regarding future supply with the current stand-off between Iran and western countries over Iran’s nuclear programme, as well as the production halt in Southern Sudan as a result of disputes with its northern neighbour, Sudan. “As the price of Brent Crude oil edges closer to US$130 per barrel in March, we expect further increases in transport inflation, certainly for next month and most probably beyond. This has already been confirmed by a second increase in the petrol and diesel pump prices in 2012,” Steytler said.
The economist added that with increasing global inflationary pressure (in the form of food and fuel inflation) being the main protagonist in the increase of the annual domestic inflation rate, we expect second round effects to persist, keeping overall inflation above the upper limit of the inflation targeting framework for the duration of 2012.