Analysts are forecasting that the Bank of Namibia will increase the repo rate when it announces its new monetary policy this week.
“We are expecting Bank of Namibia to continue raising interest rates over the medium term at least, given the concern over the flagging foreign reserves and consumer indebtedness. Therefore, expect another interest rate hike of 0.25 percent this week and perhaps again at the next MPC announcement in October,” James Cumming, the director of research at local stock broker and research firm Simonis Storm Securities, said yesterday.
Cumming says his forecast is based on the view that the Bank of Namibia is under significant pressure to raise the interest rates in a meaningful way over the medium term in order to protect Namibia’s foreign reserves, and hence the 1-to-1 rand-Namibian dollar peg.
Usually, a central bank’s primary mandate is to ensure price stability and they have at their disposal the interest rate mechanism to exert control over this by influencing the cost of money. In theory, and in a simplistic way, during periods of high inflation the central bank can temper demand by raising the cost of money, or interest rates, and ultimately lower the inflation rate, and visa versa in periods when inflation is deemed too low.
This is not entirely the case for Namibia and Cumming says the previous announcement by the monetary policy committee indicates that the Bank of Namibia is more concerned about the country’s trade deficit and foreign reserves than the inflation rate.