The Bank of Namibia (BoN) is expected to uphold the current repo rate of 7.75% during Wednesday’s monetary policy announcement, aligning with the momentum set in February’s pronouncement, analysts have projected.
The BoN’s Monetary Policy Committee (MPC) is expected to maintain the repo rate until South Africa’s cutting cycle resumes in the second half of 2024, following its second bi-monthly meeting this year.
FNB Namibia Economists Ruusa Nandago and Helena Mboti highlighted that this follows the South African Reserve Bank’s decision to maintain the repo rate at 8.25% on March 27 and BoN’s observations of robust domestic growth amid easing global and domestic inflation pressures.
“Namibia’s international reserves stood at N$55.4 billion, or US$3.0 billion (equivalent to 3.9 months of import cover). This healthy reserve position allows the BoN to comfortably maintain the 1:1 peg to the South African Rand and fulfil the country’s international obligations while still maintaining a 50 basis points differential with South Africa,” noted the economists.
This comes as Private Sector Credit Extension (PSCE) remained sluggish, declining from 2.4% y/y in January to 1.7% y/y in February, reflecting subdued credit demand from both households and businesses.
Simonis Storm Head of Investment Max Rix echoed the same sentiments, noting that the repo stance is supported by a cooling of inflation, with both the headline rate and its underlying drivers showing signs of easing on a stable basis.
“This trend indicates that price pressures within the economy are becoming less intense, reducing the immediate need for any rate adjustments to combat inflation,” he said.
Rix noted a gradual improvement in credit demand, indicating stabilising conditions and supporting the maintenance of the current repo rate to nurture the nascent recovery despite the absence of robust borrowing growth.
“By year-end, a 25-basis point rate cut is expected, reflecting cautious support for economic recovery while managing inflation. Further rate cuts will depend on ongoing positive trends and global economic conditions,” he noted.
High Economic Intelligence (HEI) noted that repo maintenance comes on the back of real GDP growth slowing from an upward-revised 3.9% in 2023 to 3.4% in 2024.
The firm highlighted that domestic downside risks to the growth forecast include drought, sporadic rainfall conditions, and water supply interruptions in coastal towns.
HEI predicts that the South African Reserve Bank will align interest rate cuts with the Federal Reserve’s decisions to maintain a gap between US and South African rates to support the Rand’s appeal.
Thus, the firm reiterated that the MPC is likely to keep the repo rate steady at 7.75% to safeguard the peg between the Namibia Dollar and the South African Rand and support the domestic economy.
