The Bank of Namibia is forecasted to cut the repo rate by 50 basis points to 7.25%, according to PSG Wealth in the second half of the year, with Simonis Storms forecasting a 25 basis points cut.
The move is aimed at bolstering economic activity and alleviating the burden of rising interest rates on consumers.
“The Bank of Namibia (BoN) is tolerating a historically wide gap between the Namibian and South African repo rates due to concerns over the negative impact of fast-rising interest rates on
Consumers” read PSG Wealth’s Economic Outlook for Namibia
Simonis Storms Economic Outlook says: “We foresee this adjustment to be a modest decrease of 25 basis points, which is indicative of a shifting monetary landscape towards a more accommodative stance. This expected move corresponds with our forecasts of a gradually stabilising economic environment, as reflected in various key economic indicators.”
Similarly, inflation is also projected to moderate from 5.9% in 2023 to 4.9% in 2024, supported by downward revisions in global fuel and food price assumptions. The repo rate cut, therefore, aims to strike a delicate balance between spurring economic growth and taming inflationary pressures.
Meanwhile, though the gross domestic product (GDP) growth of 7.2% year-on-year in Q3 2023 was held up by promising oil exploration and increased mineral output, concerns linger over the slowdown projected for 2024. Factors such as global economic headwinds and base effects in key sectors are expected to contribute to a moderation in real GDP growth to 3.1%.
“We anticipate real GDP growth to slow from an estimate of 5.8% in 2023 to 3.1% in 2024, as the expected global growth slowdown will weigh on Namibian exports, while mining growth will subside due to base effects in oil exploration.” predicts PSG
Furthermore, the current account deficit is forecasted to narrow from 9.6% of GDP in 2023 to 7.9% in 2024. While export fluctuations and import cost dynamics play a role, sustained demand for foreign services by substantial foreign direct investment (FDI) projects poses challenges for long-term deficit management.
“The expected decrease in exports and customs union revenues is likely to be offset
by a drop in fuel and food import costs, a deceleration in the growth of services linked to mineral
exploration, and an increase in tourism income.” the outlook read
On the other hand, Simonis Storm predicts that fiscal realities, including a widening budget deficit and impending presidential elections, add layers of complexity to the economic landscape. Meanwhile, the release of NSA Census data will provide valuable insights into demographic trends, informing policy decisions across sectors.
“Our forecast shows that the budget deficit as a percentage of GDP will widen to 5.3% in the 2024/25 fiscal year (FY) from 4.1% in the 2023/24 FY. The fiscal imbalance will face pressures from an anticipated decline in customs union revenues, labour union opposition to public wage bill reforms and a sharp rise in interest payments.” it reads
This comes as interest rates in the USA are likely to be cut in the middle of 2024, with the South African Reserve Bank expected to follow suit.
The BoN Monetary Policy Committee (MPC) will meet next week and announce its monetary policy decisions on Wednesday, 14th of February, 2024.
