Bank of Namibia hikes Repo to 6.75 percent, amid inflation pressure and currency depreciation

Windhoek, Namibia, Capital Markets in Africa — Bank of Namibia raised the Repurchase (Repo) rate by 25 basis points to 6.75 percent at the Bank of Namibia’s Monetary Policy Committee (MPC)  meeting held on the Tuesday 16 February 2016, Bank of Namibia Governor Ipumbu Shiimi said in a press release.

The Governor said the rate hike is to align interest rates within the Common Monetary Area which includes South Africa. This is intended to avoid possible capital outflow and undue pressure on the country’s reserve.  The bank expected that deposit-taking institutions will also increase deposit rates by the same margin to encourage savings and to reduce the recent significant increases in other loans and advances (although installment credit has slowed down), the Governor stated.

The Namibia’s economy displayed a positive performance during 2015, although lower relative to 2014, in spite of weak commodity prices. This was mainly attributed to growth in the construction, wholesale and retail trade as well as transport sectors. The mining sector, however, performed weakly. The economy is projected to grow by 4.3 percent in 2016, from an estimated 4.5 percent in 2015 however risks to Namibia’s growth potentials remain and include soft commodity prices, sustained effects of the drought and slow recovery in Namibia’s trading partner economies, the statement said.

The central bank also highlighted that the annual average inflation for 2015 declined to 3.4 percent from 5.4 percent in 2014. It, however, increased considerable to 5.3 percent in January from 3.7 percent in December 2015.  The increased inflation rates in January were due to the depreciation of the Namibian Dollar against the US dollar. The bank had expected inflation to increase gradually for the rest of the year.

Furthermore, the statement emphasized that foreign reserves (about N$27.40 billion as at the 11 February 2015) remains sufficient to sustain the one-to-one link of the Namibian Dollar to the South African Rand, being 5.8 times the currency in circulation. This is level at 3.5 months of import cover, higher than the international benchmark of 3 months. The increase in the level of reserves (compared to N$23.00 billion at the 19^th October 2015) was mainly due to SACU inflows and the depreciation of the Namibian dollar.

The Repo rate was raised by 25 basis points in February and June 2015, to contain high growth in household credit, which are primarily used to finance unproductive imported luxury goods, hence putting pressure on the foreign reserves of the country.