Central Bank increases repo rate to 5.50%, now on par with South Africa
The central bank’s Monetary Policy Committee (MPC) decided to raise the repo rate by 75 basis points from 4.75 to 5.50%.
“The decision was taken with consideration of the persistent inflationary pressures and is deemed appropriate to safeguard the one-to-one link between the Namibia dollar and the South African rand while meeting the country’s international financial obligations,” Bank of Namibia deputy governor, Ebson Uanguta said on Wednesday during an announcement.
According to Uanguta, domestic economic activity increased in the first six months of 2022, but inflationary pressure remained elevated, while growth in Private Sector Credit Extension accelerated slightly.
“Namibia’s overall inflation is now projected to average around 5.8% for 2022, with higher rates in the second half of the year than in the first half,” he added.
According to Economist Theo Klein in an analysis, the repo rate remains low relative to inflation in Namibia and South Africa, suggesting that monetary policy is accommodative at the moment.
“The repo rate has never been so low compared to inflation in the last 10 years, both in Namibia and South Africa. However, the gap is narrowing as the pace of hikes gains momentum,” he said, adding that this indicates that policy might be deemed restrictive in the near future.
“Already, market participants are expecting rate cuts in the US and UK by the second half of 2023 (2H2023), implying that South Africa and Namibia could look to cut rates towards the end of next year,” he concluded.