The Bank of Namibia (BoN) has reduced the repo rate by 25 basis points to 7.00%, citing lower inflation and moderate growth in private sector credit extension.
The move, backed by sufficient foreign reserves, aims to stimulate economic activity while maintaining the Namibia Dollar’s peg to the South African Rand.
Commercial banks are expected to lower their prime rate to 10.75%.
BoN Governor Johannes !Gawaxab said the stock of international reserves rose to N$60.9 billion as of 31 October 2024, compared to N$57.1 billion at the end of September 2024, primarily attributed to SACU inflows.
“This level of reserves translates to an estimated import cover of 4.1 months, which remains adequate to sustain the currency peg between the Namibia Dollar and the South African Rand and meet the country’s international financial obligations. Excluding hydrocarbon exploration and appraisal-related activities, the import cover stood higher at 4.9 months,” he said.
He added that domestic inflation decelerated further since the last MPC meeting. Inflation averaged 4.5% in the first ten months of 2024, a notable deceleration compared to 6.0% during the same period in 2023.
Similarly, inflation slowed from 3.4% in September to 3.0% in October 2024. The inflation rate registered in October 2024 is the lowest since February 2021.
“The disinflationary trend is attributed to the sustained lower average food inflation and, most recently, the deceleration in transport inflation. Looking ahead, the medium-term inflation projection remains unchanged from the previous MPC meeting, with forecasts of 4.3% for 2024 and 4.0% for 2025,” !Gawaxab said.
Despite the relatively stable domestic economic conditions compared to the previous MPC meeting, the increasing prominence of external risks to the domestic outlook remains a concern.
“External risks include the escalation of geopolitical tensions, geoeconomic fragmentation, and weaker global demand. Other risks are sovereign debt distress, renewed fluctuations in commodity prices, and the contraction in the Chinese property market,” the governor explained.
He added that internally, drought conditions and water supply interruptions continue to pose downside risks to the growth outlook, particularly in coastal towns.
Moreover, the BoN revised upwards the expected real GDP growth attributed to a stronger-than-anticipated performance in the primary industry, especially gold mining.
“From 4.2% in 2023, real GDP growth for 2024 as a whole is projected to moderate to 3.5%, 0.4 percentage point higher relative to the projection at the previous MPC meeting,” he said.
!Gawaxab said the growth projection for 2025 has been marginally revised upward by 0.1 percentage point to 4.0%.
Analysts were divided on whether the repo rate would be reduced from 7.25% ahead of the Bank of Namibia’s final MPC meeting for 2024.
Head of Investments at Simonis Storm, Max Rix, predicted a 25-basis-point cut, citing moderating inflation and strong international reserves.
However, High Economic Intelligence expected the rate to remain unchanged, aligning with South Africa’s recent cut and maintaining inflation stability.
Meanwhile, Zane Feris from IJG Research and FNB’s Helena Mboti supported a rate reduction, noting stable banking liquidity and positive short-term inflation trends, but cautioned about medium-term inflationary risks.
