The Bank of Namibia (BoN) will maintain its current repo rate of 7.75% at Wednesday’s monetary policy announcement, potentially marking the end of the recent rate-hiking cycle, analysts have projected.
Max Rix, Head of Research at Simonis Storm, highlighted the expected stance of the BoN, stating the strategic pause is underpinned by a moderating inflationary trend, suggesting a conducive environment for potential shifts toward a policy of rate reductions.
Rix elaborated on the projection, suggesting a cautious approach towards monetary easing, with a potential rate cut of around 25 basis points anticipated by year-end.
The assessment considers prevailing economic conditions, including easing inflationary pressures in sectors such as food and transportation.
“Namibia’s move towards lowering interest rates aligns with the global trend of slowing inflation seen in major economies like the USA and Europe, which are also expected to implement interest rate cuts,” he said.
Similarly, Angelique Bock, a research analyst at IJG Securities, echoed the same sentiments, stating “we believe that the BoN will maintain the repo rate at 7.75% and the prime rate at 11.50%.”
Bock referenced the recent meeting of the South African Reserve Bank’s Monetary Policy Committee, where both the repo and prime rates were maintained at current levels.
The cautious tone of the announcement reflected concerns over inflationary risks.
She highlighted the disparity between Namibia’s repo rate, which is 50 basis points below that of South Africa, making South African short-dated securities relatively more attractive.
Consequently, a substantial portion of domestic banking sector liquidity has flowed to South Africa, posing risks of capital outflows.
“Previous announcements from the MPC emphasized concerns regarding low growth figures in private sector credit extension. This reflects reduced willingness to invest from the private sector, with companies being net repayments of loans and households showing limited uptake of credit for substantial investments,” she said.
Bock noted that inflation, closely monitored by the BoN, has been cooling since the second half of last year, with disinflationary pressures observed in sectors such as food and transportation.
Furthermore, adequate international reserves further support the peg between the South African Rand and the Namibia Dollar, she said.
Meanwhile, PSG Wealth Bank forecast a cut by 50 basis points to 7.25%.
The firm said that the move is aimed at bolstering economic activity and alleviating the burden of rising interest rates on consumers.
“The Bank of Namibia is tolerating a historically wide gap between the Namibian and South African repo rates due to concerns over the negative impact of fast-rising interest rates on Consumers,” read PSG Wealth’s Economic Outlook for Namibia.
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