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Risk of capital flight prompts BoN move

Risk of capital flight prompts BoN move

The Bank of Namibia’s Monetary Policy Committee this week decided to increase the repo rate by 24 basis points in a move seen to dampen the impact of capital leaving the country. This was according to the Governor, Ipumbu Shiimi who explained the move adopted by the Central Bank.
“The Monetary Policy Committee decided to increase the repo rate by 25 basis points to 6.75% to align the rates within the Common Monetary Area. This decision was necessary to avoid possible capital outflows, which could put the pressure on the country’s reserves,” said Shiimi.
According to Shiimi, the level of reserves was suitable to sustain the one-to-one peg, while growing on the back of a depreciating Rand to the Dollar as well as Southern African Customs Union inflows, a situation he said rose the level of reserves to N$24 billion.
Shiimi also mentioned growing the country’s import cover by up to five months, citing a decision the central banking authorities had taken. “We have taken the decision to increase import cover to between 4 to 4.5 to 5 months of import cover,” a process he noted could take up to two years to complete.
Shiimi also sounded optimistic about adding the Yuan to the international reserves.“There’s value in China,” said Shiimi optimistically,
On the amount of credit extended to the private sector, Shiimi was pleased at the rate credit was extended as it slowed to respectable levels. “It is more pleasing that the financing of vehicles is softening,” said Shiimi.
Furthermore Shiimi said, “the moderate growth in Private Sector Credit Extended primarily resulted from reduced growth in all credit categories for both business and individuals. A positive development is the continuing declining trend in the annual growth in instalment credit extended to individuals, which slowed to 14.1% in December 2015.”
On the inflation front, Shiimi said, “While the low international oil price has been a factor behind the downward pressure on the overall inflation in 2015, the depreciation of the Namibian Dollar against the US Dollar somewhat reversed these benefits. Going forward, annual inflation is expected to increase gradually for the remainder of the year”.

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