Borrowing rate comes under focus
The Bank of Namibia (BoN) is likely to keep its repo rate at 6.75% when its Monetary Policy Committee announces its decision on Wednesday, with Simonis Storm Research saying the recent rise in inflation is too narrowly concentrated in fuel and transport costs to justify another increase.
According to Simonis Storm, the central bank raised the repo rate defensively in June, ahead of South Africa, to protect the interest-rate differential underpinning the Namibia dollar's one-to-one peg with the South African rand.
Since then, annual inflation has risen to 4.4%, its highest level since August 2024.
Simonis Storm said the headline figure overstated the underlying inflation picture, with core inflation at about 3.3% in June.
“Our call: a hold at 6.75%,” it said.
Why Simonis Storm expects a hold
First, it said the defensive move had already been made in June, when the Bank raised rates ahead of South Africa.
“Having already acted, there's less urgency to hike again right away,” it said.
Second, the latest inflation increase is concentrated in fuel and transport rather than being broad-based.
Transport accounts for 14.3% of Namibia's consumer price index basket but contributed about 1.9 percentage points, or roughly 44%, of the 4.4% headline inflation rate in June.
Petrol and diesel prices moved from an annual decline of 10% a year earlier to a 27.1% increase in June.
Simonis Storm said this was largely a base effect, with low fuel prices a year earlier followed by a partial rebound, rather than evidence of a new demand shock.
Third, Simonis Storm said the currency peg remained comfortable despite Namibia's repo rate being 25 basis points below South Africa's 7%.
The research firm said the gap was a risk to monitor, but not a red flag, and remained within the range the Bank had historically tolerated.
Fourth, the South African Reserve Bank itself held its policy rate at its July meeting, despite hotter inflation in South Africa.
That, Simonis Storm said, removed the strongest argument for another defensive rate increase in Namibia this week.
What it means for households
The decision will have a direct effect on households with mortgages and vehicle and asset finance.
Simonis Storm estimates that a N$1 million home loan over 20 years at prime would have a monthly repayment of N$9,984 if rates remain unchanged.
A 0.25 percentage point cut would reduce the repayment to N$9,816, while a 0.25 percentage point increase would raise it to N$10,152.
That amounts to a difference of about N$167 to N$168 a month either way.
For a N$350,000 vehicle loan over six years, the monthly repayment would be N$6,573 if rates remain unchanged.
A 0.25 percentage point cut would reduce this to N$6,528, while a 0.25 percentage point increase would raise it to N$6,617.
Simonis Storm said the impact of the rate decision should also be viewed against the broader rise in household costs.
“Monetary policy works with a lag, typically 12 to 18 months, so June's hike is still working its way through household budgets even now,” it said.
A hold would prevent borrowing costs from rising further, but would not reverse the higher fuel, electricity and municipal costs already facing households.
The repo rate currently stands at 6.75%.
