Central Bank expected to raise interest rate next week
As the Bank of Namibia readies to announce the monetary policy decision on 13 April, economists expect the repo rate to be raised by 25 basis points, amid the pressures from food and fuel price increases.
Simonis Storms economist, Theo Klein forecasts a 25 basis point repo rate hike on 13 April and again on 15 June, during the next monetary policy announcement. This is on the back of the recent interest rate increase by the South African Reserve Bank (SARB) in March, bringing the neighbouring country’s interest rate to 4.25%. SARB will meet again on 19 May, where another 25 basis point repo rate hike is expected.
“This will take both the Namibian and South African repo rates to 4.50% in the second quarter of 2022,” Klein said. Namibia’s current repo rate is 4%.
Klein added that about N$7.5 billion in liquidity left Namibia from December 2021 to January 2022 in search of better yields in South Africa when the Namibian repo rate was 25 basis points lower than South Africa’s repo rate.
“We, therefore, believe Bank of Namibia to hike by 25 basis points more than SARB in 2022 due to an attempt to minimise capital outflows in managing the peg,” he said.
In practice, Klein explains, interest rates can deviate as long as there are foreign currency reserves to intervene in forex markets to maintain the peg. Foreign currency reserves increased by 28% in 2021, mainly due to loans received from the International Monetary Fund and African Development Bank which have not been utilised yet.
“However, as these funds are utilised, foreign currency reserves will decrease and therefore we expect Bank of Namibia to hike by more than SARB in 2022,” Klein said.
Local liquidity levels were boosted towards the end of the first quarter of 2022 by the partial liquidation of investment proceeds from the MTC listing (the government received N$2.5 billion in total from the listing).
Klein notes that these funds will most likely be paid over to the state in preparing for payments to be made.
“However, some local banks still earn higher interest on their deposits with SARB compared to the Bank of Namibia, hence the increase in the South African liquidity position,” Klein added.
