Economic analysts have predicted that the Bank of Namibia will announce two more rate hikes before year end.
They, however, cautioned that the apex bank could keep the rate unchanged in its last meeting of the year in December.
“Our initial expectations were for a total of 125bps hike in 2022, however, we now see 200bps more likely. With an increase of 100bps YTD and three MPC meetings left for 2022, this implies a 50bps hike in the repo rate in BoN’s August and October meetings and potentially keeping the repo rate unchanged in their December meeting,” Simonis Storm Economist Theo Klein said on Wednesday.
“BoN cut the repo rate by 250bps in 2020 following the pandemic outbreak. If our expectations are realised, BoN will have 50bps left to hike in 2023 to reach pre-pandemic levels. YTD, both South Africa and Namibia have hiked their repo rates by 100bps, whereas the Fed has hiked by 75bps. This has narrowed the interest rate differential between the countries, causing Rand weakness amongst other factors.
“South Africa and Namibia have MPC meetings every two months, whereas the Fed meets every six weeks. If the Fed hikes by 50bps at its next two meetings as is widely expected, rate hikes in the US will outpace South Africa and Namibia’s cumulative rate hikes, potentially leading to further Rand weakness in coming months. As a result, total repo rate hike expectations in South Africa have changed.”
This comes as the central bank on Wednesday announced a third interest rate hike in six months, unanimously increasing by 50 basis points to 4.75 % as expected.
BoN Governor Johannes !Gawaxab, said the MPC decision was taken following a review of global, regional and domestic economic recent economic developments and the elevated global and domestic inflationary pressures, the fragile economic recovery, and the need to safeguard the one-to-one link between the Namibia Dollar and the South African Rand, while meeting the country’s international financial obligations.
“The decision was taken with due 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,” he explains.
Moreover, !Gawaxab noted that this monetary policy stance is necessary to narrow the current negative real policy interest rate that is conducive to long-term economic growth.
“This policy direction is consistent with developments elsewhere in the world and in the region, with policymakers acting with resolve to prevent the current acceleration in inflation from becoming a perpetual inflation spiral,” he said.
This comes after the MPC on the 13th and 14th of June 2022, held its bi-monthly meeting to decide the appropriate monetary policy stance given the current economic environment.
After deliberations, the MPC then decided to increase the Repo rate by 50 basis points to 4.75 percent from 4.2% announced in April 2022.
The Governor noted that the Bank will continue to monitor these developments and their potential effects on the domestic economy and will act appropriately in line with its mandate, to ensure price stability in the interest of the sustainable economic development of the country.
The next meeting of the MPC will be held on the 15th and 16th of August 2022.
