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The one that everyone got wrong

Governor of the Bank of Namibia, Ipumbu Shiimi, surprised many analysts this week when he announced there will be no hike in interest rates.

Governor of the Bank of Namibia, Ipumbu Shiimi, surprised many analysts this week when he announced there will be no hike in interest rates.

The Bank of Namibia this week surprised the market by keeping the repo rate unchanged at 5.50% despite strong market speculation that the central bank will hike interest rates following South Africa’s decision to increase its base rate recently.
Taking a cue from the South African Reserve Bank’s (SARB) surprise decision to hike that country’s repo rate by 50 basis points last month to 5.50%, market sentiment was that of a given repo rate hike by the local apex bank in order to prevent capital outflows to South Africa, but Governor Ipumbi Shiimi poured cold water on such sentiments on Wednesday saying an accomodative monetary policy is still needed to support the economy.
Contrary to consensus opinion, the Bank of Namibia said it is of the opinion that the parity in interest rates poses no capital outflow risk to the Namibian economy.
In an interview with The Economist, Governor Shiimi said: “You see the risk will only be there if there is a huge interest rates differential. At this moment in time there is no interest rates differential between us and South Africa especially when it comes to the repo rate. We have been above South Africa for quite some time now. South Africa basically came to where we are now so we don’t see a big risk there. Off course if South Africa was to increase its interest rates, then we would not want to create such a differential so we will be forced to do something, but at this point we don’t see a big risk”

The governor added that interest rates between Namibia and South Africa have been at the same level many times, and there were no huge capital outflows. “We have actually been at the same level. In fact for a longer time we have been at the same level. It’s only I think in the past two years or so when we were slightly above South Africa. In our view the risk of capital outflow is low at this stage.”
Asked what informed the market’s decision on a rate hike increase, Shiimi said: “I really don’t know, but I believe the market failed to understand that South Africa actually just came to were we are. I think for some that information was not clear to them or they didn’t have that information. If we were below, then one could make an argument that capital will flow out, but at this stage we don’t think that will happen.”
Speaking about a rate differential that would necessitate a rate hike by the central bank, Governor Shiimi said: “ Off course it depends on the market. It is always difficult to say. We have been below South Africa before, but by not more than 50 basis points and the capital outflows have not been that significant. Off course the more you stretch the gap, the more you create an incentive for people to put their money in South Africa.”
He said however, the monetary authority will not sit idle if significant capital outflows are detected. “We will have to act, but at the moment we don’t see that happening while interest rates [in the two countries] are the same.”

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