The Bank of Namibia (BoN) has begun monitoring monetary developments in South Africa to see if they will have major implications on the domestic economy.
This was after the South African Reserve Bank (SARB) recently proposed reforms of its monetary policy implementation framework (MPIF) which is geared towards money and liquidity supply management of the South African (SA) economy.
The change will affect the level of liquidity South African commercial banks will maintain with SARB and the base/reference rate (Repo) that they earn from SARB. Consequently, this could have a ripple effect on the rates investors or depositors make on their deposits with SA commercial banks, as the repo rate is often used as a base/reference rate for the deposit rates.
“Preliminary indications are that there are no imminent plans or need for BoN to change and/or adopt a similar framework in Namibia because a) the Namibian banking or financial sector is structurally different from that of SA despite being connected by subsidiaries operating in Namibia,” BoN Director: Strategic Communications and International Relations, Kazembire Zemburuka said in response to an inquiry from The Brief.
“BoN, unlike the SARB’s shortage model, operates a liquidity surplus model (although it can also handle liquidity shortage situations quite well); and lastly the monetary policy transmission mechanism in Namibia is different to that of SA.”
Zemburuka was quick to point out that changes to the South African framework will not impact monetary policy decisions in Namibia.
“The Bank of Namibia feels the current monetary policy tools at its disposal remain appropriate. These include repurchase transactions, as well as settlement account arrangements. It has no direct impact on the Namibian banks or liquidity thereof, nor would it affect the transmission mechanisms of the local policy rates. Although the BoN maintains an account with SARB for cross-border payments, the new framework will not affect this account,” he said.
“The SARB, however, has indicated that any changeover to a new framework will be run in such a way that monetary policy is not affected. Any changeover will also not directly impact the deposit and lending rates in the domestic market of Namibia.”
On the impact that the SARB policy will have on the Namibia dollar volatility considering the peg, the BoN Spokesperson said the Namibia dollar is pegged to the South African Rand (ZAR) on a one-to-one basis.
“As such, volatility should be viewed from the context of the South African Rand. It is still too early to tell what the impact of the new framework will be on the volatility of the South African Rand post-implementation. Since the new MPIF will remove the need for substantial and semi-permanent liquidity-draining operations by the SARB, it is likely to improve the health of and confidence in the South African financial system. It may make it possible for the SARB to buy or sell foreign currency in the market with fewer constraints than before, should the need arise.”
“This may lead to firmer confidence in the Rand currency, reducing its volatility. We also believe the SARB will closely monitor and counter unwarranted volatility in the ZAR. Similarly, the new MPIF’s implementation will be closely monitored by the BoN to pick up and neutralise any adverse developments.”
