The Bank of Namibia (BoN) Monetary Policy Committee (MPC) is expected to announce a 25-basis point cut in the repo rate on Wednesday, analysts have predicted.
The potential cut, which would reduce the rate from its current level of 7.50% to 7.25%, follows a trend towards more accommodative monetary policies both globally and regionally.
This move comes after the South African Reserve Bank (SARB) recently lowered its rate, prompting discussions on whether Namibia will follow suit.
FNB Namibia Economist Helena Mboti sees a likely reduction in the repo rate due to regional and global influences.
“Our baseline view is that the Bank of Namibia will reduce the repo rate by 25 basis points, following the South African Reserve Bank’s recent rate cut and in alignment with a broader trend towards more accommodative monetary policies, both globally and regionally albeit gradual,” Mboti stated.
Despite this outlook, Mboti also highlighted concerns about Namibia’s economic conditions, particularly regarding credit extension and the financial pressure on households.
“In light of weak GDP growth, sluggish PSCE growth, high non-performing loans (NPLs), and rising microlending activity, BoN has an incentive to further ease its monetary stance. The robust liquidity, growing international reserves and well-regulated nature of the financial system provide the BoN with the capacity to pursue a faster rate-cutting cycle, provided the MPC is confident that the wider rate differential will not undermine price stability,” she added.
Simonis Storm Securities Junior Economist Almandro Jansen expressed a more cautious view, stating that while a 25-basis point cut is possible, it is not guaranteed, citing a nearly even chance for the decision to go either way.
“We assess the likelihood of a 25-basis point cut to be slightly below 50%. While the decision is finely balanced, there are compelling arguments both for maintaining the current rate and for a modest reduction, reflecting the central bank’s delicate balancing act,” Jansen remarked.
Jansen pointed out that inflation dynamics will play a significant role in the MPC’s decision and noted that recent inflation data, particularly a decline in headline inflation in September, has created market expectations for a rate cut.
“The decline in headline inflation, particularly the most recent data for September, has bolstered market expectations for further easing. However, core inflation, though easing from 3.9% in July to 3.5% in September, remains somewhat persistent, indicating that underlying inflationary pressures have not entirely dissipated,” Jansen explained.
IJG Securities Managing Director Designate Eric Van Zyl firmly expects a rate cut noting that multiple economic factors support easing monetary policy, such as inflation trends and elevated real interest rates.
“We anticipate that the Bank of Namibia (BoN) will lower the repo rate by an additional 25 basis points during the upcoming Monetary Policy Committee meeting. This expectation is based on several key factors, particularly the further decline in inflation in September and the current elevated level of real interest rates,” Van Zyl noted.
Van Zyl also highlighted Namibia’s uneven economic growth, arguing that a more accommodative monetary stance could help stimulate broader economic activity.
“The argument in favour of a cut is further supported by the fact that economic growth has not been broad-based, but rather concentrated in certain pockets of the economy. This means that there is an argument to be made in favour of more accommodative monetary policy,” he said.
Despite the interest rate differential between Namibia and South Africa currently being negative, Van Zyl believes the domestic market’s liquidity levels provide room for easing without destabilising the financial system.
“Healthy liquidity levels have prevailed despite the interest rate differential between Namibia and South Africa having been negative for some time now, supporting the argument that the differential can be maintained in the short term in favour of easing domestic policy,” he explained.
The MPC has met four times this year and surprised analysts at the last meeting in August with 25-basis points cut after keeping the repo rate at 7.75% in April and June 2024.
