The Bank of Namibia (BoN) is expected to reduce the repo rate by 25 basis points (bps) next week at its first Monetary Policy Committee (MPC) meeting of the year, lowering it to 6.75%.
The anticipated rate cut aligns with South Africa’s monetary policy easing cycle and is aimed at alleviating economic pressures. Analysts predict that the central bank will maintain a balanced approach as it navigates inflation risks and currency stability.
Simonis Storm Junior Economist Almandro Jansen indicated that the base case scenario for 2025 includes a cumulative reduction of 75bps. However, external cost pressures and potential volatility in the rand exchange rate could influence the pace of further monetary easing.
“The Bank of Namibia’s monetary policy remains influenced by external economic conditions. Any sharp rise in inflation or increased volatility in the rand exchange rate could lead to a more cautious approach regarding further rate cuts,” Jansen said.
Despite the expected rate cut, Namibia’s monetary environment in 2025 is expected to balance economic support and financial stability. The BoN has maintained the repo rate at 7.00%, with the prime lending rate at 11.00%, ensuring a measured policy stance.
By contrast, South Africa’s repo rate stands at 7.50%, reflecting a more restrictive monetary policy approach.
Jansen highlighted improvements in the banking sector’s liquidity, which averaged N$8.3 billion in December, up from N$8.1 billion in November. The increase was largely attributed to higher diamond sales, which bolstered banking sector reserves.
FNB Economist Helena Mboti emphasized the importance of liquidity levels in determining commercial banks’ ability to extend credit and absorb economic shocks.
“We expect the Bank of Namibia to cut the repo rate by 25bps in February 2025, maintaining a stable interest rate differential of 75bps with South Africa while managing foreign reserves amid external risks,” Mboti said.
Despite potential rate cuts, Namibian consumers continue to face economic strain due to high prices and sluggish economic growth.
“Consumers continue to experience the strain of high prices and slower-than-expected economic growth, compounded by ongoing household financial stress, which remain key concerns for the Bank,” Mboti noted.
BoN’s foreign reserves remain stable at N$63 billion (US$3.33 billion) as of December 2024, covering 4.2 months of imports, or 5.1 months excluding oil and gas imports.
Mboti added that the interest rate differential with South Africa is expected to remain at 75bps for most of 2025 but could narrow if the South African Reserve Bank continues its easing cycle or if Namibia’s international reserves come under pressure in the latter half of the year.
She also highlighted that the redemption of Namibia’s Eurobond is expected to temporarily pressure foreign reserves. However, the BoN has planned to manage this through the sinking fund to maintain currency stability.
“Our baseline view is that the MPC will maintain the repo rate at 6.75%, with limited further cuts expected in 2025. Any unforeseen strain on reserves may lead the BoN to adjust the interest rate differential in the second half of the year, especially if global trade risks materialize,” Mboti said.
