Bank of Namibia maintains existing repo rate
The Bank of Namibia's (BoN's) monetary policy committee (MPC) this week elected to keep the repo rate at 7.75%, saying the decision was motivated by the need to maintain the one-to-one peg between the Namibian dollar and the South African rand.Reflecting on the decision, BoN governor Johannes !Gawaxab said deflationary pressures also played into the MPC's decision to maintain the repo rate.
"Domestic inflationary pressures eased further since the previous MPC meeting. Overall inflation slowed to an average of 5% during the first quarter of 2024, from an average of 7% during the same period in 2023. The deceleration was predominantly driven by food and transport price inflation. Likewise, inflation decelerated to 4.5% in March 2024 relative to the 5.4 percent for January 2024 reported at the previous MPC meeting," he said.
Looking ahead, !Gawaxab said inflation is anticipated to slow down to 4.9% in 2024, 0.1 percentage point above the projection at the previous MPC meeting. "The slight upward adjustment is on account of persistent geopolitical tensions, which could potentially induce speculative spikes in oil prices, and uncertain rainfall conditions," !Gawaxab said.
Lower demand for credit
Regarding the appetite for credit, !Gawaxab noted that annual growth in private sector credit extended (PSCE) moderated to only 1.7% in February 2024 from the 1.9% for December 2023, which was reported at the previous MPC meeting. Similarly, PSCE growth slowed to an average of 2% during the first two months of 2024, compared to 2.8% in the corresponding period in 2023.
This was on account of lower credit demand by households, particularly in the categories of mortgages and other loans, advances and overdrafts, he explained.
The MPC noted the persistence of global inflation and a range of inflation risks but took comfort in the downward trend in domestic inflation and the positive level of domestic real interest rates, which help to contain inflationary pressures.
The level of international reserves was deemed adequate, while overly subdued domestic credit growth remained a concern. Against this backdrop, the MPC decided to keep the repo rate unchanged at 7.75%. Likewise, the prime lending rate remains steady at 11.5%.
"This policy stance will continue to safeguard the one-to-one link between the Namibia dollar and the South African rand and support domestic economic activity. The MPC views it as important for monetary policy to create and maintain an environment of stability and certainty," !Gawaxab said.