The Bank of Namibia (BoN) is set to convene its final Monetary Policy Committee (MPC) meeting for 2024 tomorrow, with analyst forecasts divided on whether the central bank will cut the repo rate or maintain the current 7.25% level.
The decision will be announced on 4 December and Simonis Storm Head of Investments, Max Rix, predicts a 25-basis-point reduction to 7.00%, citing favourable economic conditions.
“We expect the Bank of Namibia to reduce the repo rate by 25 basis points, bringing it down from 7.25% to 7.00%. This forecast reflects our view of the current economic dynamics, inflation trends and regional monetary policy alignment,” Rix said.
Rix emphasised that a rate cut would support Namibia’s economic recovery without compromising stability.
“With inflation moderating to 3.0% y/y in October and real rates remaining positive, Namibia has the flexibility to support domestic growth without risking inflationary pressure or financial stability,” he added.
Rix said international reserves of N$60.9 billion, equivalent to 4.5 months of import cover, further strengthen Namibia’s ability to adopt an accommodative monetary stance.
However, High Economic Intelligence (HEI) research anticipates the BoN will hold the repo rate steady at 7.25%.
The firm highlighted that the South African Reserve Bank (SARB) recently cut its repo rate by 25 basis points (bp), from 8% to 7.75% in November 2024.
“This adjustment reflects a moderation in South Africa’s inflation, which is below the target range of 3%-6% and currently stands at 2.8%, the lowest level since 2020. These trends are indicative of monetary policy alignment within the Common Monetary Area (CMA), driven by the currency peg between member countries. Notably, all CMA countries except Lesotho have reduced their repo rates,” noted the firm.
HEI noted that given the committee’s practice of aligning monetary policies with the SARB, they are of the view that the BoN will keep the repo rate at 7.25%, a move anchored to stabilise inflation projections for early 2025.
The debate over the repo rate decision also considers Namibia’s position within the Common Monetary Area.
South Africa recently reduced its repo rate by 25 basis points to 7.75%, leaving Namibia’s differential at 50 basis points.
A cut by Namibia would widen this gap to 75 basis points, but analysts argue the move could still be justified.
IJG Research Analyst, Zane Feris, supports the possibility of a cut, noting stable liquidity in the banking sector.
“We anticipate that the central bank will lower the repo rate by 25 basis points during the upcoming Monetary Policy Committee meeting. This outlook is based on several factors, including a continued drop in inflation during October. Real interest rates are still relatively high, while banking sector liquidity levels have remained strong and even improved in November,” Feris said.
The central bank last reduced the repo rate in October by 25 basis points, citing the need to support economic growth while maintaining the currency peg with the South African Rand.
Meanwhile, FNB Namibia Economist Helena Mboti expects the BoN to reduce the repo rate by a further 25bps at tomorrow’s meeting.
“Risks to this view include that the Bank may choose to hold rates if it adopts a more cautious stance, considering medium-term inflation risks, recent fiscal relief to consumers, and the need to assess the transition mechanism before making further cuts,” she said.
Mboti noted that Namibia’s inflation is on a downward trend, food and housing prices continue to put upward pressure on inflation, meaning that risks remain despite the overall positive trend.
“Namibia’s GDP growth is above historical averages, and private spending is showing signs of increasing, driven by stronger economic activity and fiscal relief measures. This could create additional inflationary pressures in the medium term, leading BoN to adopt a more cautious approach, temporarily holding rates before resuming its easing cycle,” she added.
However, she highlighted that consumer confidence and private sector credit extension growth remain low despite higher GDP growth.
“Given the lower inflation outlook in the short term and limited risks of capital flight, BoN has room to ease by a further 25bps tomorrow and maintain the 75bps differential with the South African Reserve Bank,” she said.
