Benefits from the current fixed one-to-one exchange rate arrangement between the Namibia Dollar and the South African Rand outweigh the costs, and delinking is not an option, as it would severely negatively impact the domestic economy in various ways, the Bank of Namibia governor has said.
Johannes !Gawaxab said Namibia is not yet at the point of thinking about a delinking.
He made these remarks last week at the monetary policy dialogue, organised by Bank of Namibia (BoN) under the theme, ‘Building Monetary Resilience in the Midst of Challenging Macroeconomic Headwinds’. The gathering follows the recently-announced repo rate hike of 50 basis points to 7.75%.
In attendance were local economists, analysts and researchers, who discussed domestic and global economic and financial trends that have influenced recent monetary policy actions.
!Gawaxab stated the repo rate increase was to continue safeguarding the one-to-one link between the Namibia Dollar and the South African Rand.
It is simultaneously aimed at further containing inflationary pressures, stemming their associated second-round effects and anchoring inflation expectations.
“We wouldn’t even want to tolerate or engage in a debate that we are thinking of delinking the currency. Anyone else is free to think about that. But as BoN, our position is the current arrangement serves the country quite well. With a small open economy, we can hardly influence anything. And we don’t even think about the conditions of a possible exit,” !Gawaxab pointed out.
Furthermore, the governor said he foresees some domestic risks for the year. These include the sluggish global economic outlook, which is negative for Namibia’s commodity demand and export revenue; the uncertainty of the Chinese economy that clouds the demand for Namibia’s metal commodities; high costs of key import items, given the expected depreciation of the NAD against US$; high global interest rates that will tighten financial conditions; water supply interruptions affecting the coastal mines, and the looming drought that threatens the agriculture sector.
Food sufficiency
According to the Namibia Statistics Agency (NSA), during the month of May 2023, the annual inflation rate stood at 6.3%, compared to 5.4% in May 2022. The main contributors to the annual inflation rate in May 2023 were food and non-alcoholic beverages, as well as alcoholic beverages and tobacco.
Food and non-alcoholic beverages increased by 12.5% and contributed 2.4 percentage points to the overall consumer price index (CPI) annual rate of 6.3%.
This was followed by alcoholic beverages and tobacco, which increased by 7.5% and contributed one percentage point to the overall CPI annual rate for May 2023.
On a month-on-month basis, the inflation rate stood at 0.2%, compared to 0.4% registered during the preceding month.
To this, !Gawaxab said food inflation skyrocketing is a clear sign for the country to look into food self-sufficiency.
– mndjavera@nepc.com.na