Namibia set for big interest rate hike in October

Economists are predicting the Bank of Namibia (BoN) will raise its benchmark interest rate by 0.75 percentage points in October, the second such rise in a row, and signal plans to raise rates again in the coming months. 

This was after the South African Reserve Bank's Monetary Policy Committee (MPC) raised the benchmark repo rate by 75 basis points to 6.25% on Thursday to combat consumer inflation. 

The hike comes as central banks around the world are increasing rates to tackle a soaring cost-of-living crisis. The Bank of England is expected to announce its largest rate rise in 25 years this week and the European Central Bank raised interest rates across the eurozone by a record margin earlier this month as inflation reached double figures in some of its 19 member countries. 

FirstRand Namibia Economist Ruusa Nandago said Namibia's rates are now 75 basis points lower than those of South Africa until the Bank of Namibia's MPC decision in October. 

The BoN Monetary Policy Committee (MPC) resolved to increase the Repo rate by 75 basis points to 5.50% from 4.75 at its bi-monthly meeting on the 15th and 16th of August 2022. 

"Given our currency peg to the South African Rand, we expect our interest rates to increase by 75bps in line with the SARB’s decision.  Failure to do so would mean capital would flow out of Namibia to South Africa where it can earn a higher interest," said Nandago. 

She said this would jeopardise the stability of the currency peg and risk severe inflation, and that the Bank of Namibia will likely continue to closely monitor the SARB's decisions to avoid such a scenario. 

On the same note, Simonis Storm Securities Economist Theo Klein indicated the MPC is expected to follow through with the 75 basis points in their October meeting, then another 75 basis points in December depending on what the Federal Reserve in the United States decides to do as they continue to monitor monthly economic data. 

"We are of the view that SARB is likely to move in tandem with the Federal Reserve Bank regarding rate hikes," said Klein. 

SA Reserve Bank Governor Lesetja Kganyago said risks to the inflation outlook are assessed to the upside. 

“While global producer price and food inflation has eased, Russia’s war in the Ukraine continues, with adverse effects on global prices. Oil prices increased strongly from the start of the war, to around US$130 per barrel, and may rise again from today’s level as stresses in energy markets intensify. Electricity and other administered prices continue to present clear medium-term risks,” SARB Governor Kganyago said.

 

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Last modified on Monday, 26 September 2022 00:20

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