The Monetary Policy Committee (MPC) of the Bank of Namibia (BoN) has resolved to maintain the Repo rate at 7.75% after its bi-monthly meeting held on 14 and 15 August 2023.
However, leading economic advisory firm Simonis Storm is anticipating both the South African Reserve Bank (SARB) and Bank of Namibia (BoN) to hike the interest rates by 25bps before the end of the year in response to the Fed’s hike in July 2023.
BoN Governor Johannes !Gawaxab noted that the repo determination reflects the committee’s commitment to preserving the stability of the Namibia Dollar’s exchange rate with the South African Rand and providing continued impetus to the domestic economy.
“After a comprehensive review of global, regional, and domestic economic developments, the MPC has decided to keep the Repo rate unchanged at 7.75%. This decision aligns with our strategic objectives to ensure monetary stability and support sustainable economic growth,” said !Gawaxab.
The South African Reserve Bank (SARB) held its MPC meeting on 20 July 2023 whereas the Fed met on 26 July 2023 and hiked by 25bps.
Hence, SARB’s decision to keep rates unchanged in July 2023 followed the Fed’s decision in June 2023 when the Fed kept rates unchanged and BoN followed in line.
“We expect one more 25 bps hike before the end of the year by both the South African Reserve Bank (SARB) and Bank of Namibia (BoN) in response to the Fed’s hike in July 2023. Thereafter, we expect rates to remain elevated and only see rate cuts taking place from 2H2024 onwards,” said Simon’s Storm in a report.
The next meeting of the MPC will be held on 23 and 24 October 2023.
The report noted that Namibia’s economic journey post-April 2023’s MPC meeting has been one of progressive strides, underscored by growth in strategic sectors, augmented foreign currency reserves, and prudent monetary policy.
“If our projected 25bps rate increase occurs, this cycle will rank as the third quickest for rate hikes. The real repo rate, accounting for inflation, remains much lower than previous cycles and pre-pandemic levels. This suggests we’re nearing the end of this cycle, as additional hikes could hamper economic activity,” said the firm.
Balancing the need for economic stimulus with the necessity for fiscal discipline will continue to be a core challenge for policymakers in the upcoming months, the firm added.
“Since the last MPC meeting (19 April 2023), the governor highlighted that economic activity continues to improve, still being driven by the mining, livestock marketing, wholesale and retail, communication and tourism sectors based on the bank’s internal high frequency data,” it reads.
This comes as BoN increased their GDP growth forecast for 2023 from 3.0% to 3.3% and revised its inflation forecast downwards from 6.1% to 5.6% for 2023, slightly below the firm’s forecast of 5.9%.
Meanwhile, current foreign currency reserves increased from N$53.0 billion in June 2023 to N$54.2 billion, an all-time high in nominal terms.
“The increase in the official reserves was predominantly due to higher SACU receipts, export earnings from diamonds and the weaker exchange rate. At this level, the stock of international reserves is estimated to cover 5.7 months of imports,” said the Governor.
He adds that the stock of international reserves remains sufficient to support the currency peg between the Namibia Dollar and the South African Rand and meet the country’s international financial obligations.
