Fifth policy announcement by BoN set for Wed
0.50% differential between Namibia and SA
At the previous monetary policy announcement, the central bank decided to keep the repo rate unchanged at 7.75%.
The fifth monetary policy announcement for the year by the Bank of Namibia (BoN) is expected to take place on Wednesday.At the previous monetary policy announcement in August, the central bank decided to keep the repo rate unchanged at 7.75%. Namibia is 50 basis points (bps) behind South Africa. The South Africa Reserve Bank (SARB) at its fifth monetary policy announcement in September decided to keep the repo rate unchanged at 8.25%.
Looking at prices, data released by the Namibia Statistics Agency (NSA) indicated that local inflation came in at 5.4% in September. Year to date, inflation averaged 6%.
In addition, the stock of international reserves increased to N$55.6 billion in August 2023, translating into 5.6 months of import cover, remaining above the international benchmark and adequate to support the currency peg between the Namibia dollar and the South African rand.
Market Watch recently reported that member states in which the South African rand circulates should maintain foreign reserves equal or in excess of the currency in circulation. As at 28 August 2023, the currency in circulation stood at N$4.9 billion.
The minimum intervention threshold at which the level of foreign reserves shall be considered inadequate is defined as the foreign reserves falling short of the following coverage ratios: (1)Currency in circulation plus a 12-month average of cross-border transfers or (2) three months’ worth of imports.
Expectations
According to PSG, due to the recent Israel-Hamas conflict and extended oil production cuts by Saudi Arabia and Russia, oil prices are likely to trend higher in the short term.
“This poses risk to inflation and we expect more fuel price hikes this year as a result of recent developments. Despite inflation edging closer to 6%, we do not expect any additional interest rate hikes by the Bank of Namibia in 2023,” PSG said.
Simonis Storm also expects interest rates to remain unchanged at the next scheduled meeting on the 25th of October 2023, following South Africa Reserve Bank and Federal Reserve Bank movements.
Lastly, IJG Securities noted that inflationary risks remain to the upside, with higher, volatile, oil and fuel prices and a strong US dollar presenting central banks around the world with fresh challenges in their efforts to keep inflation in check and could result in interest rates remaining higher for [email protected]