Rate cycle turned, short term interest rates down by 25 basis points
In line with expectations, the Monetary Policy Committee of the Bank of Namibia, on Wednesday followed the cue of the South African Reserve Bank and lowered short term interest rates by one quarter of a percentage point.
“The Monetary Policy Committee of the Bank of Namibia cut the Repo rate by 25 basis points to 6.75%. The Committee took the decision to support domestic economic growth, while maintaining the one-to-one link between the Namibia Dollar and the South African Rand” said central bank Deputy Governor, Ebson Uanguta in a statement announcing the rate decision.
During their meeting on Monday, the Monetary Policy Committee took note of domestic economic activity, saying the first semester of 2017 reflected weak performance in the construction, manufacturing, wholesale, retail and transport sectors. However, improved performance was noted in mining, communications and livestock marketed.
The Committee also noted that inflation has receded from 8.2% in January this year to 5.4% at the end of July but the average annual rate was still higher than during the first six months of 2016.
The dismal peformance of credit growth was also noted. “The growth in Private Sector Credit Extension slowed during the first six months of 2017. The annual rate of [private sector credit] growth stood at 8.5% on average during the review period, lower than the 12.5% recorded over the same period in 2016” stated the Committee.
A glimmer of hope is offered by the substantial rise in international reserves. “As at 31 July 2017, the preliminary stock of international reserves stood at N$32.7 billion, representing an increase, both on a monthly and annual basis. The increase was mainly due to repatriation of funds by financial institutions, the African Development Bank loan inflow and the repayments by the National Bank of Angola. At this level, the stock of international reserves is estimated to cover 5.5 months of imports of goods and services, and thereby remains sufficient to sustain the currency peg between the Namibia Dollar and the South African Rand.”
“The Monetary Policy Committee was mindful of the lower inflation rate, realised and projected for the Namibian economy, the strong fiscal consolidation drive and the improved international reserve position. Given the weak domestic economy, the Committee decided to cut the Repo rate by 25 basis points to 6.75% with effect from 16 August 2017, to support domestic economic activity.
The next meeting of the Committee will be held on 17 October 2017, stated the Bank of Namibia.