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Repo rate goes to 7%

The Bank of Namibia this week hiked the repo rate by 25 basis points, bringing it to 7%, in line with the repo rate in South Africa.
Explaining the move, central bank Governor, Ipumbu Shiimi said the move was necessary to maintain the country’s one-to-one currency peg with that of anchor country, South Africa. Shiimi was also hopeful that it would encourage savings.
Speaking on the issue, he said, “the Monetary Policy Committee of the Bank of Namibia decided to increase the Repo rate by 25 basis points to 7%, to align interest rates with that of South Africa and hence to sustain the one-to-one link of the Namibia Dollar to the Rand.
This decision was necessary to prevent possible capital outflows, which could put pressure on the country’s international reserves. With this increase in the Repo rate, it is expected that deposit-taking institutions will also raise deposit rates by the same margin, thereby encouraging savings.”
Shiimi noted that inflation was showing an upward trend, rising from 3.7% in December 2015 to 6.1% in February 2016. He explained that this was mainly due to increases in the inflation rates for housing, water, electricity, gas and the other fuels category, which carried the biggest weight in the total inflation basket.
Shiimi reiterated that the stock of international reserves was sufficient to support the one-to-one currency peg with South Africa, standing at well over N$26 billion as at 11 April 2016, approximately 5.5 times the currency in circulation.
Other positives he reflected on is the slowed growth in credit extended to the private sector observed over the first two months of 2016. Said Shiimi, “the annual growth in Private Sector Credit Extension averaged 13.2% in 2016.
This lower growth in PSCE primarily resulted from a reduced growth in credit advanced to the corporate sector in the form of mortgage, overdraft and installment credit.”
The next Monetary Policy Meeting will take place in June.
Expectations are varied among analysts, with Suta Kavari of Capricorn Asset Management stating that he expects two more hikes in 2016. Commenting on the central bank’s move, he said, “Going forward, we expect two more interest rate increases this year, taking the repo and prime rates to 7.50% and 11.25% respectively, after which we expect a normalisation in rates and a moderation in the country’s inflation profile in 2017. Some light at the end of a very long tunnel.”
Ngoni Bopoto of Namibia Equity Brokers in anticipation of the announcement said, “Notwithstanding the desire to maintain the currency peg, we expect the Bank of Namibia to keep interest rates unchanged at their April 2016 meeting [since] the elevated levels of domestic residential property prices will be exacerbated by higher mortgage financing costs.”
This week’s MPC statement did not mention the impact of the import of luxury cars on the balance of payments.

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