Bank of Namibia Governor, Johannes !Gawaxab, is set to announce the Monetary Policy Committee’s (MPC) decision on Wednesday, with analyst pointing to the repo rate remaining unchanged at 3.75%.
Robert McGregor, the Cirrus Capital Head of Research, told The Brief that Namibia still has the 25bps spread above the South African repo rate – providing some breathing room.
“We expect the repo rate to remain unchanged, as it stands. Additionally, credit extension growth remains very low in Namibia and inflation is still very moderate. There are expectations for many parts of the world to begin rate hikes in the next few months, including South Africa and the UK, but these may take more slowly than the market is currently anticipating. Many of the countries that have seen recent rate hikes are doing so because of higher inflation (but are also seeing some growth), whereas inflation in South Africa (and Namibia) is still within the target range and overall credit growth remains tepid,” he said.
Simonis Storm Economist Theo Klein only predicted a repo rate hike of between 50 and 75 basis points by the end of 2022.
“We believe that the Bank of Namibia (BoN) will keep the repo rate unchanged at 3.75%. The biggest upside risk to interest rates relates to the Federal Reserve tapering its bond purchasing program from December this year. This can potentially lead to risk off sentiment amongst foreign investors, where emerging market currencies stand to weaken. This will prompt emerging markets to increase interest rates faster than what otherwise would have happened in the absence of the Fed tapering,” he said.
“Namibia’s inflation remain modest and well below its long run average, with adequate levels of foreign currency reserves. Also, low interest rates do not necessarily stimulate growth in the current environment, as we continue to see weak demand for credit from commercial banks. Based on the above, we do not see any economic reason to justify an interest rate hike by BoN in its October meeting. We believe that BoN will hike their repo rate by between 50 and 75 basis points by the end of 2022. This will be the first time BoN raises interest rates since the pandemic outbreak, whereas other Southern African countries have already increased their interest rates.”
