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Repo rate: Economists weigh-in

2019-04-11  Edgar Brandt

Repo rate: Economists weigh-in

WINDHOEK – The central bank has maintained the repo rate at 6.75%, in line with the expectations of economic gurus, although there are divergent views regarding the decision to leave the rate unchanged for almost two years while the country’s economy is teetering.

The last time the rate was changed was on 16 August 2017. The repo rate is the rate at which commercial banks borrow from the central bank and this in turn determines the interest rates at commercial banks.

While major central banks are flirting with plans to devise easier monetary   policies due to heightened global political uncertainty after Britain’s vote to dump the European Union as well as the trade standoff between China and the United States of America, Bank of Namibia’s Monetary Policy Committee (MPC) believes the rate is appropriate to support the domestic economy, while maintaining the one-to-one link between the Namibia Dollar and the South African Rand. 
Local economists however have different views on the matter.

“I must say the continued decision to leave the repo rate unchanged despite the tough economic climate in the country surprises me. As the last lender of resort, BoN ought to devise strategies and policies to salvage the economy,” said Mally Likukela, an independent economist.

Likukela noted that “Namibia’s overdependence South Africa is the primary reason why its not deviating from the repo rate of the neighboring giant”.

Another economist, Salomo Hei, welcomed the decision to leave the rate unchanged and said it came as no surprise.
“The economy has not recovered, therefore we cannot expect major changes, especially considering the fact that consumers are still under pressure,” he said, adding that BoN should be credited for ensuring that the inflation rates did not spiral out of control.

Announcing the MPC decision yesterday, Deputy Governor of the Bank of Namibia, Ebson Uanguta, noted that the domestic economy remained weak during the first two months of 2019. 

“Inflation edged up and Private Sector Credit Extension (PSCE) growth increased. The stock of international reserves remained sufficient to support the currency peg,” said Uanguta. 
He added that domestic economic activity in fact slowed during the first two months of 2019 compared to the same period in 2018. 

“The slowdown in activity was reflected in sectors such as mining, agriculture and construction. Other sectors, including transport and communication, wholesale and retail trade as well as manufacturing improved during the same period. Going forward, the domestic economy is projected to record a marginally positive growth rate in 2019,” Uanguta noted. 
Elaborating on the the annual average growth in PSCE, which increased to 6.3 percent during the first two months of 2019, compared to 5.7 percent in the corresponding period of 2018, Uanguta said the growth was due to an increase in business credit of 5.9 percent during the first two months of 2019 from 3.5 percent in the corresponding period last year. 

“This was mainly due to the uptake of short-term credit facilities by businesses. Household credit growth, however, slowed from 7.3 percent during the first two month of 2018 to 6.5 percent for the comparable period of 2019. Since the previous MPC meeting, the annual growth in PSCE moderated to 6.0 percent at the end of February 2019, from 6.7 percent reported at the last MPC meeting,” Uanguta noted. 

The Bank of Namibia’s figures also indicate that as at the end of March 2019, the stock of international reserves stood at N$32.6 billion, compared to N$30.7 billion reported in the previous MPC statement. 

“This amount of international reserves is estimated to cover 4.3 months of imports of goods and services. At this level, the reserves are sufficient to protect the peg of the Namibia Dollar to the South African Rand and meet the country’s international financial obligations,” Uanguta stated. 

Commenting on the global economy that slowed during the fourth quarter of 2018, Uanguta noted that inflation rates in most monitored Advanced Economies (AEs) and Emerging Market and Developing Economies (EMDEs) edged up slightly during February 2019. 

2019-04-11  Edgar Brandt

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