Namibia is expected to continue increasing its interest rates into 2023 in a bid to stamp out high inflation according to Investec.
The financial services group noted that Namibia and South Africa could hike their interest rates by 50bps in 2023’s first quarter, but this could be followed by a 25bps cut in third and fourth quarters of the same year, to bring the repo rates in South Africa and Namibia back to 7% by end of the fourth quarter of 2023.
“The risk of continuing with an aggressive (i.e. front loading) rate hiking cycle in South Africa and Namibia by implication, is that monetary policy becomes restrictive for an economy not experiencing demand-pull inflationary pressures and having numerous domestic economic growth challenges. This implies that the rate hiking cycle in South Africa – and Namibia – could come to an end by early 2023, especially if domestic growth concerns influence rate decisions more than global interest rate differentials,” Simonis Storm Economist Theo Klein said.
The South African Reserve Bank (SARB) and Bank of Namibia (BoN) have hiked their respective repo rates by 250bps and 175bps year to date according to the research firm, with the bulk of South Africa’s hikes being announced in 2022’s third quarter.
There are already indications that the Bank of Namibia could raise its benchmark interest rate by 0.75 percentage points in October, the second such rise in a row, and signal plans to raise rates again in the coming months.
“The Forward Rate Agreement (FRA) curve prices in a 75bps hike at SARB’s November meeting and 50bps in January 2023, with BoN most likely to follow with a 75bps hike at their December meeting. We see the repo rates between South Africa and Namibia equalised at 7.00% by the end of this year, with the prime rate at 10.50% in South Africa and 10.75% in Namibia,” he said.
SARB only has one meeting left (on 24 November), whereas BoN has two meetings left (on 19 October and 7 December).
The hike comes as central banks around the world are increasing rates to tackle a soaring cost-of-living crisis.
FirstRand Namibia Economist Ruusa Nandago said Namibia’s rates are now 75 basis points lower than those of South Africa until the Bank of Namibia’s MPC decision in October.
“Given our currency peg to the South African Rand, we expect our interest rates to increase by 75bps in line with the SARB’s decision. Failure to do so would mean capital would flow out of Namibia to South Africa where it can earn a higher interest,” said Nandago.
