WINDHOEK – The Bank of Namibia’s number one priority is to protect the one-to-one currency peg with the South African rand. This was part of the message shared yesterday by the Governor of the Bank of Namibia, Iipumbu Shiimi, during a breakfast discussion themed “Demystifying interest rates and thinking behind rate decisions”.
During the breakfast session, organised by the Economic Association of Namibia and the Hans Seidel Foundation, Shiimi admitted that the Bank of Namibia is “constrained” to a certain extent because of the one-to-one peg with the rand. “Because of the peg we need interest rates to be more or less in line with the South Africa”, noted Shiimi.
“If we maintain the currency peg we will be able to import inflation from South Africa”, said Shiimi, adding that the overall objective of the central bank is to keep inflation low and stable.
Shiimi explained that the two main instruments available to the central bank are fiscal policy and monetary policy, of which the latter covers the repo rate that in turn determines the interest rates at commercial banks. He emphasised, however, that the Bank of Namibia’s Monetary Policy Committee closely looks at global and domestic economic and financial developments, inflation forecasts and liquidity as well as money market developments before taking a decision on the central bank’s repo rate. The governor continued that the central bank’s repo rate was ‘very accommodative’ during the last five to six years. The Bank of Namibia’s Monetary Policy Committee (MPC) has thus far increased the repo rate with consecutive 25 basis point hikes in June and August.
To make its decision the MPC had to take into account that the International Monetary Fund (IMF) has revised its global economic outlook downwards in July, from 3.7 percent in April to 3.4 percent due mainly to weak activities in the first quarter of 2014 in the United States as well as a less optimistic outlook in some Emerging Market Economies. In contrast, the outlook for the Namibian economy is rather positive, with Shiimi noting that the domestic economy is expected to grow by 5.4 percent during 2014, compared to 4.4 percent in 2013.
According to Shiimi the growth of the local economy will be driven mostly by construction, government spending as well as wholesale and retail trade.