The Bank of Namibia (BoN) is likely to keep the repo rate steady when it makes its first Monetary Policy Announcement on Wednesday, a local economist has said.
Economist Mally Likukela told Nampa in an interview on Tuesday Namibia’s international reserves are favourable and sufficient to sustain the currency peg arrangement and the difference between South Africa and Namibia’s repo rate is not wide enough to trigger capital outflow to South Africa.
“There is a weak stimuli from low interest rates as can be seen in low uptake of credit by businesses and households over the past months from the time the bank started cutting the repo rate,” Likukela explained.
In contrast, a report by Fitch Solutions indicated that Namibia is expected to follow the monetary policy trajectory of the South African Reserve Bank (SARB), which increased the neighbouring country’s repo rate recently.
At its final monetary policy committee meeting of December 2021, the BoN kept the repo rate at 3.75 per cent for the eighth consecutive time.
The decision reflects the central bank’s view that the current repo rate is appropriate to support the domestic economy which has been weakened due to the COVID-19 pandemic, and to protect the Namibian dollar’s one-to-one peg to the South African rand.
“The latest interest rate decision reinforces our view that the BoN will keep its repo rate in line with the South African Reserve Bank’s rate over the coming quarters, and we forecast that BoN will hike to 4.75 per cent in 2022,” Likukela said.
He noted that if the bank is to increase the repo rate, they risk creating unintended consequences for consumers who are already highly indebted according to the latest financial stability report by Namfisa. If the interest rates increases, credit uptake will also be further depressed and businesses will pass the cost of capital services on to consumers, thus the BoN would be helping the economy by holding the rates steady for now.
The Namibian economy is highly susceptible to external shocks and the financial market responds quicker to these shows more than other sectors of the economy, Likukela said.
The economic outlook is negative and weighed down by low confidence in business, while building plans, new vehicles sales and new business registration all point downwards, suggesting weak economic activity in the short term to medium term.
Source: The Namibian Press Agency
