The Bank of Namibia’s Monetary Policy Committee (MPC) yesterday further reduced the Repo rate from 4.25% to a historic low of 4.00%. This latest reduction translates into a cumulative 2.50%-point reduction in the Repo rate since the beginning of 2020.
According to the central bank’s deputy governor, Ebson Uanguta, the MPC had to balance the need for further monetary stimulus in the face of the pandemic-induced weakness in the economy, against the importance to not undermine sound saving and investment decisions in the economy.
“The MPC is of the view that at 4.00%, the repo rate is appropriate to support domestic economic activity while at the same time safeguarding the one-to-one link between the Namibia Dollar and the South African Rand,” Uanguta noted.
The latest Repo rate reduction comes as the Namibian economic activity contracted during the first four months of 2020 and inflation remained muted while Private Sector Credit Extension (PSCE) growth declined.
According to Uanguta, the domestic economic contraction was widespread among sectors, including the mining, manufacturing, wholesale and retail trade, transport and the tourism sectors. A few economic indicators such as local electricity generation and building plans approved, however, showed some improvement during the first four months of 2020, relative to the corresponding period of 2019. However, Uanguta cautioned that the Namibian economy is projected to contract further in 2020.
Namibia’s annual average inflation declined to 2.1% during the first five months of 2020, compared to 4.4% in the corresponding period of 2019. The decline was mainly due to a decrease in inflation for the categories of transport, housing and food during the period under review. On a monthly basis, inflation stood at 2.1% for May 2020, higher than the 1.6% reported in April 2020. Overall inflation is projected to average around 2% in 2020.
Average growth in PSCE slowed to 5.8% during the first four months of 2020, lower than the rate of 6.4% recorded over the same period in 2019. The slowdown in PSCE was due to lower credit demand by businesses. Since the previous MPC meeting, growth in PSCE slowed to 3.7% at the end of April 2020, from 6.7% reported in the previous MPC statement.
Uanguta also stated that as at 31 May 2020, the stock of international reserves stood at N$33.7 billion, compared to N$33 billion reported in the previous MPC statement. This amount of international reserves is estimated to cover 5.1 months of imports of goods and services, which remains sufficient to protect the peg of the Namibia Dollar to the South African Rand and meet the country’s international financial obligations.