BoN follows the leader by holding interest rates
By Gerrit van Rooyen
Analyst at Oxford Economics.
The Monetary Policy Committee (MPC) of the Bank of Namibia (BoN) decided to keep the repo rate unchanged at 6.5% following the conclusion of its latest policy meeting. The BoN notes that domestic economic activity continued to slow down during the first 10 months of 2019, dragged by weak mining, construction, electricity and wholesale and retail trade output.
Meanwhile, the average annual inflation rate declined to 4.0% during the first 10 months of 2019, from a peak of 5.6 y-o-y recorded in November 2018. According to the central bank, the moderation in inflation is mainly due to a decline in housing and transport price inflation.
BoN said the stock of international reserves stood at N$32.5 billion as at 31 October 2019, compared to N$32.3 billion recorded at the time of the previous MPC statement. At this level, reserves are estimated to cover 4.3 months of imports of goods and services, and sufficient to protect the Namibian dollar’s peg to the South African rand and meet the country’s financial obligations.
As we expected, the BoN kept interest rates on hold, in line with the South African Reserve Bank’s (Sarb) decision in November. Looking ahead, we expect the BoN to continue to track the Sarb’s decision. Unfortunately, this is bad news for the struggling Namibian economy and especially the ailing retail trade sector which could do with an injection of lower interest rates, as we forecast South Africa’s central bank to keep interest rates on hold in 2020.
Despite there being justification (moderately low inflation and a dismal growth outlook) for the Sarb to lower interest rates, we expect the apex bank will take a conservative approach in light of the possibility of further negative credit rating action after South Africa’s fiscal budget presentation in February 2020.