Economists and industry experts in the country say the Bank of Namibia (BoN) could have increased the repo rate by as much as 75 to 100 basis points, rather than the 50 basis points hike announced by the central bank on Wednesday.
The BoN’s Monetary Policy Committee surprised analysts by raising the repo rate by 50 basis points to 7.75%, instead of the anticipated 25 basis points increase.
Business leaders say a much higher rate hike would have been more appropriate.
“If I was on the monetary policy committee, I would have gone for 75 basis points even 100bp increase at this point,” incoming Development Bank of Namibia CEO and Economist, John Steytler told an Economic Association of Namibia (EAN) gathering on Wednesday, while supporting BoN’s decision for a higher than forecasted repo rate increase.
Jesaya Hano-Oshike, the vice president of the EAN, echoed Steytler’s sentiment, saying he too would have supported a 75 to 100 basis points increase.
“The fear is always that if I am an investor and I get better returns in South Africa as opposed to Namibia I would move my money to South Africa. Having worked in the treasury some time back, that is always the case when you are able to get a better return in South Africa than in Namibia you would move your money to South Africa,” said Hano-Oshike.
However, Robert McGregor, the Head of Research at Cirrus Capital, offered a different perspective, noting that Namibia’s macroeconomic environment could allow for a deviation from South Africa’s rates.
“Our macro does suggest that we could deviate for a bit and maybe look to catch up with SA back on the way down as we have done in the past. We are seeing good inflows from SACU receipts, which are much higher, almost double what they were last year, got good earnings from our hard currency exports, especially from diamond proceeds for government, and then also were seeing large FDI in the country, especially from the mining sector, and oil and gas,” said McGregor.
McGregor added that historical data shows that Namibia has deviated from South Africa’s rates by as much as 250 basis points in the past, which indicates that the country has some flexibility in setting its interest rates relative to its neighbour.
Salomo Hei, the Managing Director of High Economic Intelligence, supported the 50 basis point lag between Namibia and South Africa.
He explained that the discrepancy is necessary to maintain the peg between the Namibian dollar and the Rand while emphasising the importance of striking a balance between attracting investments, preventing capital outflows, and safeguarding the currency peg.
“You don’t necessarily want to be equal to what South Africa is doing per se, but to make sure that you don’t lose the necessary investments or capital outflow and at the same time to protect the peg you want to be within a certain range,” he said.
