The Bank of Namibia’s (BoN’s) Monetary Policy Committee (MPC) on Friday cut the repo rate by 100 basis points, from 6.25% to 5.25% to help cushion the anticipated impact of Covid-19 and support domestic economic activity, while maintaining the one-to-one link between the Namibia Dollar and the South African Rand. The Repo rate is the level at which commercial bank’s borrow money from the central bank, and it determines the interest rate customers are offered by these banks.
Yesterday, Standard Bank was the first to confirm a decrease in its prime lending rate. Effective 23 March 2020, Standard Bank will enforce a decrease of 1% on deposits, loans and advances, in line with the BoN’s decision to cut the repo rate.
The reduction of the prime lending rate is meant to provide relief to consumers and is additional to several measures taken by the Bank to mitigate the potential impact of Covid-19. Other banks are expected to follow suit as is the norm when the repo rate changes.
Former governor of the BoN Ipumbu Shiimi met with the MPC on Friday in light of the recent extraordinary events emanating from the Covid-19 pandemic. Shiimi added that BoN will continue to monitor developments in the economy and will take necessary steps within its mandate to support the Namibian economy during this time.
Since the last MPC meeting, financial markets and equity markets in particular recorded significant losses as risks and uncertainty increased. Similarly, all monitored commodity prices weakened due to weak demand from major economies such as China.
In particular, crude oil prices declined significantly, reinforcing the effects of excess oil supply. While the low crude oil prices may negatively impact oil-exporting countries, it could bring some relief to oil-importing countries such as Namibia.
On account of this development, inflation in some countries declined, while it remained generally low across other economies. Exchange rates and particularly those of the Emerging Market and Developing Economies (EMDEs) depreciated significantly.
“To stimulate growth and cushion [of] the negative effects of Covid-19, various central banks have since adopted accommodative monetary policies by cutting interest rates. This was also done in order to counter deteriorating financial conditions. These were accompanied by fiscal stimulus in most of the affected economies in the world. Domestic economic activity slowed during the first two months of 2020. The inflation rate declined, while the growth in Private Sector Credit Extension (PSCE) rose in January 2020. The stock of international reserves remained sufficient to support the currency peg,” Shiimi explained in a statement.
Domestic economic activity slowed during the first two months of 2020 compared to the same period in 2019. The slower growth was mainly reflected in declining economic activity in sectors such as mining, wholesale and retail trade, as well as tourism.
Activity in other sectors, including transport and construction, improved during the first two months of 2020, relative to the corresponding period of 2019. Preliminary assessments indicate the domestic economy may not be spared from the brunt of Covid-19 and may, therefore, continue to weaken in 2020.
Namibia’s average annual inflation for the first two months of 2020 declined further to 2.3% from 4.5% in 2019, mainly on account of a decline in all top three categories, namely: food and non-alcoholic beverages, housing, and transport inflation.
Going forward, overall inflation is projected to average around 2.6% in 2020. Growth in Private Sector Credit Extension (PSCE) rose to 7.3% during January 2020, from 6.4% in January 2019. Shiimi commented that it is encouraging that growth in PSCE is mainly driven by businesses.
As at 29 February 2020, Namibia’s stock of international reserves stood at N$32.2 billion, from N$31 billion reported in the previous MPC statement. This amount of international reserves is estimated to cover 4.6 months of imports of goods and services. At this level, reserves are sufficient to protect the peg of the Namibia Dollar to the Rand and meet the country’s international financial obligations.
Meanwhile, global economic growth is estimated to weaken in 2020, below initial projections on the back of corona. Since the previous MPC meeting, inflation rates in most key monitored economies declined or remained low, while monetary policy stances were broadly accommodative.
Shiimi noted the global economy is projected to have weakened significantly since the last MPC meeting. This was mainly on the back of the spread of the virus beyond China, as well as its associated effects on global demand and supply chains. This has prompted a downward revision in global growth projections and negatively affected capital and commodity markets worldwide.
2020-03-24 08:32:25 | 3 months ago