Namibia central bank expected to follow South Africa's repo rate hike: experts

  • World
  • Saturday, 27 May 2023

WINDHOEK, May 26 (Xinhua) -- Namibia's central bank is expected to increase the repurchase rate by 25 basis points (bps) to 7.50 percent from 7.25 percent at the next Monetary Policy announcement set for mid-June, experts told Xinhua Friday.

The move follows the announcement of the South African Reserve Bank's (SARB) Monetary Policy Committee (MPC) Thursday to increase the repo rate by 50 bps to 8.25 percent, which translates to a 14-year high.

"We believe that the Bank of Namibia will only hike by 25 basis points in their June meeting. In the past, one out of five MPC members were always in favor of hiking in step with the Reserve Bank in South Africa, with the majority of MPC members favoring a more conservative approach," said Theo Klein, an economist of Simonis Storm Securities, an investment research firm.

According to Klein, if this sentiment has not changed among MPC members, "we believe a 25bps hike to be more realistic."

Klein is of the view that Namibia has allowed the local repo rate to deviate from South Africa in the past when foreign currency reserves were high. "This also supports the view that our repo rate will remain below the repo rate in South Africa," he added.

Josef Sheehama, an independent economic and business researcher, also believes that Namibia's MPC will also take the same route and increase the rate as South Africa, but by 25 bps.

"The decision reflects Namibia's central bank's ongoing view that the current repo rate is appropriate to support the still weak domestic economy and to protect the Namibian dollar's one-to-one peg to the South African rand," he explained to Xinhua.

According to him, Namibia's average inflation stabilized at 6.1 percent in April compared to 7.20 percent in March.

"The deterioration in foreign exchange rates, especially Namibia dollar/U.S. dollar to 19.7768 will further encourage the Bank of Namibia to tighten its monetary policy," he added.

Sheehama said the increase in food prices has been noted as a concern for the global and local economies.

"Driving up such inflation was the rise in the prices for items such as electricity, gas, fuel, food and transport. These increases will certainly impact every single Namibian given the reliance the country has on imports. The softening Namibia dollar is doing little to fuel confidence and will no doubt add to pricing pressures. While this will reflect in June figures, dampens the inflation outlook further," he said.

Sheehama also said Namibia's economic rebound is expected to continue, albeit at a slower rate, as policy stimulus fades and terms of trade retreat from the recent record highs.

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