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Namibia cuts rate 5th time as economy shrinks

August 19, 2020

Namibia’s central bank cut its benchmark interest rate for the 5th time this year as economic activity has contracted severely, credit growth has slowed and inflation remains at historic lows.

Bank of Namibia (BON) lowered its repo rate by another 25 basis points to 3.75 percent and has now cut it by 275 points this year, still less than South Africa’s rate total rate cuts of 300 points following the South African Reserve Bank’s latest cut in July.

“The MPC (monetary policy committee) is of the view that at 3.75 percent, the repo rate is appropriate to support domestic economic active while at the same time safeguarding the one-to-one link between the Namibia dollar and the South African rand,” the central bank said, adding:

“The MPC had to balance the need for further monetary stimulus in the face of the COVID-19 pandemic-induced weakness of the economy, against the importance to not undermine sound saving and investment decisions in the economy.”

As of July 31, Namibia’s stock of international reserves rose to N$35.4 billion from N$33.7 billion at the end of June, enough to cover 5.3 month of imports.

Namibia’s gross domestic product shrank 2.59 percent in the first quarter from the previous quarter for a year-on-year decline of 0.8 percent and the central bank forecast a contraction of 7.8 percent this year before recovering a moderate 2.1 percent in 2021.

“The slump was reflected in sectors such as mining, agriculture, manufacturing, construction, tourism, wholesale and retain trade as well as transport and storage,” BON said, adding local electricity generation and telecommunications had showed some improvement from last year.

Namibia’s inflation rate was steady at 2.1 percent in July, June and May for an average of 2.1 percent in the first seven months of this year, down from 4.3 percent in the same 2019 period.

BON projected average inflation this year of around 2 percent.

Average growth in private sector credit expansion declined to 4.7 percent in the first six months of this year, down from 6.9 percent in the same period of last year, as growth of credit to businesses only grew 2.2 percent in that period, the bank said.

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