Interest rates remain flat

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Staff Reporter

Windhoek-In line with the FNB Namibia view, interest rates remain unchanged as announced last week by the Bank of Namibia’s Monetary Policy Committee. Daniel Kavishe, Market Research Manager at FNB Namibia, explains: “As a policy tool across the world, interest rates remain central banks’ main lever to impact monetary policy within a given country. Theoretically, central banks across the world hike interest rates when they feel that inflation is increasing at an unstable rate and if credit appetite is too high. Conversely, they will lower interest rates to stimulate borrowing, which will increase spending, investment and boost growth. Central banks can also keep rates unchanged as they observe the behaviour of their current policy in action.”

Kavishe advised that Namibia’s case followed a similar pattern but added that the country is also unique as it forms part of a greater monetary policy area (Common Monetary Area). “This means our central bank; Bank of Namibia tends to monitor general movements of interest rates within the area.”

Kavishe highlighted some of the factors that the Bank of Namibia considered in its latest decision. In terms of growth, BoN expects it to recover over the course of this year to 2.2 percent but because several indicators still point to a gradual recovery it opted to keep rates flat until the economy gathers steam.

Inflation in 2017 declined to 6.2 percent from 6.7 percent in 2016 as food prices lowered. BoN expects inflation to trend down even further in 2018 to 5 percent. It is therefore this lower inflation forecast that potentially informed the decision to keep rates flat for longer.

Meanwhile, private sector credit extension (PSCE) growth to businesses and consumers slowed down in 2017. Looking forward, however, the numbers are expected to normalize, which gives the central bank more confidence in holding rates flat for longer at this stage.

Also, the country’s foreign reserves held steady with the official stock of reserves at N$30.2 billion, which loosely translates to 4.7 months import cover and is more than sufficient to maintain the one-to-one peg with the South African rand and, as such, made it unnecessary for BoN to hike interest rates.

“Going forward we can expect monetary policy to track global and regionally interest rates, remaining as accommodative as possible in order to stimulate growth.”