SARB keeps its policy rate unchanged at 8.25%
Differential in the repo rate is 0.50%
There was a capital outflow of N$10.1 billion from Namibia to South Africa during the first five months of 2023.
The repo rate differential between Namibia and South Africa is 50 basis points (bps), following the South African Reserve Bank’s (SARB’s) decision to keep its policy rate unchanged at 8.25%. Year to date, SARB increased the repo rate by 125 basis points.Fin24 reported that annual consumer price inflation in South Africa slowed dramatically to 5.4% in June from 6.3% in May. The last time consumer inflation was within the Reserve Bank's target range of 4% to 6% was more than a year ago. Inflation averaged 6.6% in the first half (1H) (January to June) of 2023.
Meanwhile, the Bank of Namibia increased the repo rate by 100 basis points year to date. The repo rate currently stands at 7.75%. Inflation in Namibia slowed to 5.3% in June and averaged 6.5% in the first half of 2023, according to the Namibia Statistics Agency (NSA). The central bank projects inflation to average 6.1% in 2023.
At the third monetary policy announcement for the year, the governor of the Bank of Namibia Johannes !Gawaxab stated that there was a capital outflow of N$10.1 billion from Namibia to South Africa during the first five months of 2023, compared to N$7.75 billion in the same period last year. This was partly driven by the differential in the repo rate in the two countries.
“Asset managers and retirement funds are chasing higher returns in South Africa because they can earn more in South Africa than in Namibia. We need to catch up and close that gap before it becomes a bigger problem,” he said last month.
Outlook
According to PSG’s Economic Outlook report, the Bank of Namibia tolerated a historically wide gap between the Namibian and South African repo rates due to concerns over the negative impact of fast-rising interest rates on consumers. “We still expect the central bank to raise its policy rate by another 25 bps to 8.00% in 2023 to prevent capital outflows and to support the currency peg to the South African rand,” PSG said.
Moreover, Simonis Storm noted that in June’s monetary policy committee (MPC) meeting, one member was in favour of a 75bps hike, whereas the other four members voted for a 50bps hike. It seems sentiment amongst most local MPC members has changed from being fairly conservative, to now being more in favour to move in lock step with SARB.
“Given the dates of BoN’s meetings, it can be that they pre-empt hikes in South Africa and hike by 50bps at their next meeting in August,” Simonis Storm [email protected]