The Bank of Namibia has increased the repo rate by 25 basis points to 7.25% and effectively bringing the prime lending rate to 11%.
This comes after the South African Reserve Bank raised the repo rate by 50 basis points last month, bringing it to 7.75%.
As a result, the Bank of Namibia’s decision puts Namibia 50 basis points behind South Africa, which analysts believe will have little impact despite the one-to-one link between the Namibia Dollar and the South African Rand.
“Deviation between Namibia and South Africa’s repo rates have occurred many times in the last twenty years, typically when Namibia had a high level of foreign currency reserves. Foreign currency reserves are at an all-time high – both in nominal and real (adjusted for inflation) terms – allowing for further deviations between the two repo rates. Current reserve levels are estimated to cover 4.8 months of imports,”Simonis Storm Economist Theo Klein said.
Klein noted that the largest spread between the two repo rates was 150bps between June 2008 and February 2009, “but the longest period of deviation was during March 2010 to December 2013 (46 months in total)”.
On the same note, BoN Governor Johannes !Gawaxab said “At this level, the stock of international reserves is estimated to cover 5.1 months of imports. This remains adequate to support the currency peg between the Namibia Dollar and the South African Rand and meet the country’s international financial obligations. As at the 31st of March 2023, the stock of international reserves increased to N$48.5 billion, from N$47.4 billion in February 2023.
The rise in the level of international reserves was driven by the depreciation of the Namibia Dollar against the US Dollar.”
He explained that as of the 14th of April 2023, foreign exchange reserves increased further to levels above “N$50 billion, driven by higher SACU receipts, diamond sales, and foreign direct investment inflow in the manufacturing sector”.
!Gawaxab said the MPC decision was taken to contain inflationary pressures, stem their second-round effects, and anchor inflation expectations.
“The decision is also deemed appropriate to safeguard the one-to-one link between the Namibia Dollar and the South African Rand. Moreover, this monetary policy stance will take the current negative real policy interest rate to a positive rate.”
The increase in the rate is nevertheless of moderate proportion to support the domestic economic recovery.
The next meeting of the MPC will be held on the 12th and 13th of June 2023.
