By:Justicia Shipena
The Bank of Namibia (BoN) Monetary Policy Committee (MPC) is expected to announce its decision on the repo rate on Wednesday as inflation has slowed.

This comes amidst questions of whether the BoN will follow South Africa’s lead and pause interest rate hikes.

The MPC in June this year raised the repo rate by 50 basis points to 7.75%.

According to Floris Bergh, Chief Economist at Capricorn Asset Management, the central bank is unlikely to adjust the interest rate.
“I expect that the Bank of Namibia will not change the interest rate on Wednesday. In other words, staying on pause, as we call it,” he said.

Bergh’s forecast is predicated on the fact that inflation has moderated somewhat, with “the latest number coming in at 4.5% for July.”
Inflation, he said, is no longer a threat to interest rates.

According to Trading Economics, Namibia’s annual inflation rate resumed its downward trend, reaching a near 1-1/2-year low of 4.5% in July 2023, compared to 5.3% in June, owing to a quicker decrease in transport prices (-2.5% vs. -0.1% in June).

Another reason Bergh believes the BoN will not raise rates is because loan growth is quite modest.

“In other words, there is low demand in the economy for credit, which also lessens the upward pressure on interest rates. They will also take into account what other central banks are doing, where the most important is the SARB [South African Reserve Bank], where they have also paused their interest rate hiking cycle in July; that is another factor,” he explained.

Another issue, according to Bergh, is not losing sight of what has already been done.
“You can see that the repo rate has more than doubled from the very start of last year. This very sharp increase in interest rates has brought a lot of pain for people with mortgages and car payments. So in my view, it seems that enough has been done already, and taking into account the factors I mentioned, I think it is time for a pause,” Bergh emphasised.

Simonis Storm Securities’ forecasts are also similar.

Angelique Bock, research assistant at Simonis Storm Securities, says that with the SARB’s interest rates remaining constant at their most recent meeting, they expect the BoN to follow suit and retain Namibia’s repo rate at 7.75%.
“Given that our inflation rates are coming in lower and our foreign reserves are at an all-time high, we see less reason why the Bank of Namibia would hike on Wednesday,” Bock argued.

However, Bock stated Simonis Storm Securities anticipates one more 25-bps repo rate rise by the SARBs to follow the US Federal Reserve, with Namibia doing the same later in the year.

“But for the next meeting, we see rates remaining unchanged.”

South Africa’s central bank agreed last month to suspend interest rate rises for the first time since November 2021, but its Governor Lesetja Kganyago was eager to point out the break did not imply the end of the rising cycle.
The SARB’s Monetary Policy Committee (MPC) held interest rates at 8.25% despite lower-than-expected inflation predictions and stronger economic circumstances.
Meanwhile, Economist Klaus Schade said inflation, as well as the peg to the South African Rand, have an influence on the ultimate choice, adding that in order to keep the peg, Namibia must ensure a particular level of foreign exchange reserves at the central bank.
“If interest between South Africa and Namibia diverts by a large margin, we might face an outflow of funds to South Africa. Consequently, the decision is also influenced by the level of interest rates in South Africa,” he said.
According to Schade, there is good news on inflation, which has dropped from about 7% at the start of the year to 4.5% in July.
He stated that all of these are good reasons that would ideally lead to the BoN deciding to halt raising interest rates further as it has an impact on Namibia’s investment climate.
Schade went on to say that the more costly corporate loans are, the less probable it is that they will invest and generate new employment.
When asked how long the pause should last in order to offer relief to businesses and private consumers, Schade stated that it takes time for interest rates to have an influence on inflation since businesses and households cannot respond instantly, as there is a time lag.
“But we see a downward trend, and hopefully that will result in no further interest rate hikes if the trend of inflation continues.”