The Bank of Namibia (BoN) is expected to increase interest rates by 25 basis points (bps) tomorrow as the country struggles to contain rising inflation.
The central bank has already predicted inflation to average 6.1% in 2022 and fall to 4.9% in 2023.
Following the central bank’s Monetary Policy Committee (MPC) holding their first meeting for the year on Monday and Tuesday this week, PSG Namibia is forecasting a 50bps hike.
“We expect the central bank will raise its policy rate by a further 50 bps to 7.25% in Q1 2023, in line with the policy of the South African Reserve Bank which it closely follows. Thanks to tighter monetary policy, softer global fuel and food prices, and weaker domestic demand, we forecast CPI inflation will decelerate from an average of 6.1% in 2022 to 5.0% this year.”
The research firm noted that the Bank of Namibia raised the repo rate by 300 bps in 2022 to combat rising inflation and to maintain the one-to-one currency peg to the South African rand.
On the other hand, Cirus Capital Securities and Simonis Storm are predicting a 25bps hike on Wednesday.
Cirrus notes that given Namibia’s reluctance to hike, seen by the deviation at its Nov ’23 meeting, the firm believes that BoN will follow a less hawkish South African Reserve Bank (SARB) until it begins to cut rates.
“The SARB’s Jan ’23 decision to hike by 25bps shows that it, too, has become less hawkish. Inflation is cooling while growth remains a challenge in South Africa, particularly with increased loadshedding.
After the initial hike, we anticipate another two hikes of 25bps each this year, with a wait-and-see approach adopted in 2H ’22.”
Research firm Simonis Storm is forecasting a 25bps hike or for the repo rate to remain unchanged at the central bank’s next meeting.
“Initially, we expected a 50bps hike by BoN in February 2023, but now it seems likely for a 25bps hike or for the repo rate to remain unchanged at the next meeting. We believe a 25bps hike is more likely, as BoN progresses on a gradual reduction in the pace of rate hikes and reaching the end of the local hiking cycle. We still expect BoN to follow SARB with two 25bps cuts in 3Q2023 and 4Q2023.”
Meanwhile, FirstRand Namibia says that barring any further inflation shocks, a global shift in monetary policy stance is expected, to either pause or slow down the pace of interest rate hikes in 2023.
Furthermore, after raising rates by a cumulative 300bps in 2022, RMB expects the pace and magnitude of rate hikes in Namibia to reduce in 2023, and for the hiking cycle to peak in the first half of the year.
“We expect rates to end the year at 7.25% and for the cutting cycle to begin in the first half of 2024. The trajectory of rate movements is highly dependent on the path of interest rate movements in South Africa, necessitated by the currency peg to the Rand” said FirstRand Namibia Economist Ruusa Nandago
This comes after the SARB Monetary Policy Committee last month voted to hike interest rates by 25 bps, taking the country’s repurchase rate to 7.25%, increasing the prime lending rate to 10.75%.
SARB’s hike was in line with Simonis Storm’s projection of a 25bps hike as opposed to 50bps hike by SARB in January 2023 which is in line with the Forward Rate Agreement (FRA) curve which factors in about another 25bps hike in South Africa by the end of 1Q2023.
Despite analysts differing on the quantum of the interest rate hikes, what is certain is that individuals and businesses who have taken out debt, should expect a further increase in their debt servicing costs after 15 February.
