Growth Doesn’t Warrant Bank Rate Change

Home Archived Growth Doesn’t Warrant Bank Rate Change

By Wezi Tjaronda WINDHOEK The bank rate has been left unchanged at 7.00 percent considering the current economic developments in the country. The bank rate is the interest rate at which the Bank of Namibia lends money to commercial banks. The recovery of Namibia’s gross domestic product (GDP) during the fourth quarter of 2005, the stability and strength of the Namibian currency as well as monetary developments are some of the considerations, the central bank, the Bank of Namibia (BoN), took to leave the bank rate unchanged. After its meeting last week, the Monetary Policy Management Committee said it decided to leave the rate at 7.00 percent after a close review of the current domestic and international economic developments. The last time the bank rate was changed was on April 14, 2005 when it was changed from 7.50 percent. Favourable macro-economic conditions led to the reduction in the bank rate that time. BoN Governor, Tom Alweendo, said in a statement last week that despite a slowdown in the global economy during the fourth quarter of 2005, Namibia’s GDP recovered remarkably to the extent that it rose to 4.1 percent compared to a contraction of 2.1 percent in Quarter 3 in 2005. The turnaround in the GDP is attributable to the good performance of the mining and quarrying and the wholesale and retail sectors. During the fourth quarter, the sector recorded a 15.1 percent growth due to the recovery, especially in some minerals, namely, diamonds, uranium, gold, zinc and marble, whose demand has been strong on the international market, China being specific. Apart from the mining and quarrying, wholesale and trade sectors, other sectors such as agriculture, electricity, water, transport and communications also maintained positive rates despite their growth slowing down. Although inflation in January and February 2006 increased to 3.7 percent compared to 2.6 percent at the same time in 2005, this did not have a bearing on the increase in consumer prices. “Despite the build-up of inflationary pressures since September 2005, the secondary effects on inflation due to the rising oil price have not come to bear as the increase in consumer prices in Namibia has remained at historically low levels,” Alweendo said. The inflation the first two months was driven by the increase in inflation of alcoholic beverages, and tobacco, housing, water, electricity, gas and other fuels as well as education. The Governor also noted that South Africa’s CPIX continued to be higher than the Namibian inflation. Although the South African index followed the same upward movement, like that of Namibia, one of the reasons accounting for the increase in the CPIX was the rise in fuel prices at the beginning of 2006. “Notwithstanding the upside risk posed by the volatility of oil prices and other administered prices in he economy, the inflation rate for Namibia remained at acceptable levels,” he said. But considering that crude oil prices have hit an all time high at close to US$70 per barrel this month, this remains the main risk to the future outlook as far as inflation is concerned. Alweeendo warned that if crude oil prices continue to rise, it might upset the good inflation prospects for the future. Namibia’s money supply has also remained moderate over the past few months and is not a cause for concern, said the bank, adding that although private credit extension remained strong, it was not alarming since a bigger share is extended to the buoyant property market and the mining sector, which helped in the recovery of the economy in the last quarter of 2005. While this is the case, the bank says it will keep an eye on both the domestic and international economic developments and make necessary developments when appropriate to achieve the objective of price stability in the country.