In line with economists’ expectations, the Bank of Namibia opted to hike interest rates by 25 basis points (bp), taking the repo rate to 4.25 percent from 4.00 percent.
The Monetray Policy Committee (MPC) based its decision on the regional rise in interest rates and inflation expectations. “We reiterate that interest rates will continue to rise at a staggered rate (25bp at every meeting) over the remainder of the year,” RMB economist Daniel Kavishe wrote in his daily report. He says the risks of a higher once off adjustment will largely depend on whether inflation prints above the upper band of the target range for a sustained period. Meanwhile, he observed that private sector credit extension (PSCE) remains quite low and is likely to continue to grow at a slow pace given the rising interest rate environment amid an already challenging consumer environment.
Inflation in Namibia has been relatively subdued over the past five years, hovering between 2 percent and 6 percent. Primarily, subdued demand has kept prices anchored across the economy as general economic conditions remain lacklustre. According to RMB, the latest GDP print showed that the economy grew by 2.4 percent in 2021, with the market expecting annual growth to come in between 3.0 percent and 4.0 percent over the medium term. Kavishe expects inflation to increase, given rising fuel, food and other import costs. “Thus, we expect inflation to print above 6.0 percent over the next twelve months.