Bank of Namibia seeks to strike balance between growth and inflation
By Josef Kefas Sheehama.
The recorded annual inflation rate for July 2023 stands at 4.5%, marking a notable decline from June’s figure of 5.30%. This has implications for various sectors, particularly for aspiring first-time home buyers who maintain a steady interest in homeownership. The Bank of Namibia’s decision to maintain the repo rate at its current level has added motivation for this group.
The recent monetary policy committee (MPC) meeting resulted in a unanimous vote to keep the benchmark repurchase (repo) rate unchanged at 7.75%. This decision is significant as it has a direct impact on various aspects of financial commitments such as home loans, car loans, and personal loans. Given that other lending and interest rates are interconnected with the repo rate, its stability indicates that interest payments on housing, vehicles, as well as savings and investment products, may remain unchanged. It’s important to note, however, that earnings from interest-bearing savings products could potentially see a decrease.
The decision to maintain the repo rate creates a choice for consumers. They can either opt for fixed-rate loans that ensure a constant repayment amount, albeit with an initial higher cost or choose more flexible floating-rate loans. This flexibility comes with its own set of advantages.
The Bank of Namibia has been delicately balancing economic growth and inflation, considering external factors like the impact of COVID-19 and geopolitical conflicts. Despite these challenges, signs point to potential inflation concerns in the future.
The MPC anticipates a moderation in inflation in the first half of 2023, followed by a move to the target rate, allowing room for accommodative measures. Government-initiated supply-side interventions have been instrumental in containing inflationary pressures. However, uncertainty persists concerning domestic food prices due to unpredictable weather events and looming drought in Namibia.
The halt in the repo rate hike, while providing a temporary respite, shouldn’t be seen as a cessation of the rate hike cycle. The Bank of Namibia remains committed to its core mandate – managing inflation to align with the target range. Elevated domestic inflation would prompt the Bank to raise policy rates. The complex interplay between inflation, interest rates, and economic growth presents a significant challenge to addressing inequality and fostering sustainable development.
The slower economic growth in recent years, combined with the impact of COVID-19, has highlighted the need for a conducive environment to attract foreign investors and drive progress.
The Bank of Namibia’s measures to control inflation and normalize policy reflect a proactive stance to stabilize the economy. As global economies navigate inflation and post-pandemic recovery, the spotlight falls on 2023. Will governments and central banks find the balance between supporting growth and managing inflation effectively? The Bank of Namibia’s decisions will play a pivotal role in determining the outcome.
In conclusion, the pause in the repo rate by the Bank of Namibia is strategic, yet it doesn’t preclude future adjustments. This stance aligns with the goal of containing inflation within the target range for 2023. As we move closer to the midpoint of the target range, supported by factors like a positive base effect and moderated commodity prices, the Bank of Namibia’s projections for economic growth are optimistic.
While the forecast for 2023 remains at 3.3%, expectations for 2024 indicate a slightly slower growth rate of 3%. As the economic landscape evolves, the Bank of Namibia’s decisions will continue to shape the nation’s financial trajectory.
I personally doubt that Bank of Namibia will resort to additional tightening. The Namibian economy recorded a growth of 5% in the first quarter. Inflation quickly moderated after global commodity prices normalized.
