Martin Endjala
The Bank of Namibia has reduced the repo rate by 25 basis points, lowering it from 7.50% to 7.25%, a move attributed to the drop in consumer inflation, which fell to 3.4% in September.
According to economist Josef Sheehama, who responded to the Monetary Policy Committee’s (MPC) announcement, lower fuel prices, driven by declining oil prices and a stronger Namibian dollar, have been key factors in this cooling of inflation.
“The interest rate cut will undoubtedly relieve pressure on all Namibians,” Sheehama said.
He believes the decrease in consumer inflation influenced the MPC’s decision to lower the repo rate.
Despite the positive news, Sheehama noted that the decision was neither shocking nor surprising.
“The decision is consistent with the central bank’s belief that the current repo rate is suitable for bolstering the domestic economy and reducing consumer burdens,” he added.
Sheehama also stated that the rate cut will provide some relief for those with lower incomes or consumers struggling to meet their debt obligations.
He noted that investors may experience a decline in returns, and the 0.75 basis point difference between Namibia and South Africa could lead to capital flight as investors seek higher returns elsewhere.
Although this downward trend in the repo rate differs from previous years, Sheehama suggested that the target breach will be short-lived and contained.
He also indicated that if oil prices continue to decline in line with the Bank of Namibia’s targeted inflation rate, the repo rate is likely to decrease further until 2025, provided geopolitical tensions ease.
BoN Governor Johannes !Gawaxab said the decision to lower the repo rate aimed to continue supporting the domestic economy while maintaining the peg between the Namibia Dollar and the South African Rand.
The decision followed a comprehensive review of domestic, regional, and global economic developments.
Namibia’s economy recorded slower growth in the second quarter of 2024, at 3.5%, compared to 4.3% in the first quarter of 2024 and 3.6% in the corresponding quarter of 2023.
The Bank of Namibia has projected growth to moderate to 3.1% in 2024 and 3.9% in 2025, down from the 4.2% recorded in 2023.
The anticipated slowdown is largely attributed to a weakening primary industry, reflecting drought conditions and sluggish global demand.
“Since the last MPC, inflation has surprised to the downside, falling from 4.6% in July 2024 to 3.4% in September 2024, the lowest since August 2021, mainly due to the deceleration in transport inflation,” !Gawaxab said.
The medium-term inflation forecast has been revised downward to 4.3% in 2024 and 4.0% in 2025, compared to 4.7% and 4.4% forecasted at the previous MPC meeting.
Commercial banks are expected to reduce their prime lending rate by the same magnitude, bringing it down to 11%. Growth in Private Sector Credit Extension (PSCE) has remained sluggish, with an average PSCE growth of 2.0% for the first eight months of 2024, compared to 2.7% during the same period in 2023.
The continued slow growth in credit extended to the private sector is attributed to weak demand and tight lending conditions.
However, recent tax relief, lower interest rates, and government expenditures are expected to stimulate credit demand.
As of the end of September, Namibia’s international reserves stood at N$57.1 billion, down from N$60.8 billion in July.
The next MPC meeting is scheduled for 2 and 3 December.
