The Bank of Namibia’s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 3.75%.
This is to continue supporting domestic economic activity, particularly in light of the alarming increase in Covid infections and hospitalisation, while at the same time safeguarding the one-to-one link between the Namibia dollar and the South African rand.
The repo rate is the level at which commercial banks borrow money from the central bank and in turn determines interest rates for consumers.
Making the announcement last week, central bank governor, Johannes !Gawaxab, noted that domestic economic activity remained weak in the first four months of 2021. Moreover, the inflation rate increased during the first five months of 2021, while growth in Private Sector Credit Extension (PSCE) remained subdued during the first four months of the year.
“The slowdown in economic activity was mainly observed in the tourism, mining, agriculture, manufacturing, construction, as well as transport and storage sectors. On the contrary, activity in the wholesale and retail trade sector, as well as the telecommunications subsector recorded positive growth during the same period,”!Gawaxab stated. He continued that recent monthly indicators showed that the mining, as well as the transport and storage sectors gained some momentum.
Said !Gawaxab: “Going forward, the domestic economy is expected to grow by 2.7% in 2021. Since the last MPC meeting, uncertainties and risks have increased and are likely to impact the economy negatively going forward. Hence, the successful procurement and expeditious rollout of Covid-19 vaccines in Namibia remain key to the extent and speed of the economic recovery.”
Further, Namibia’s annual average inflation increased to 3.2% during the first five months of 2021, compared to 2.1% for the corresponding period in the previous year. The increase in inflation was mainly driven by an increase in food and housing inflation during the period under review. This was on account of supply constraints particularly for meat, coupled with the influence of base effects in the rental payments for dwelling subcategory, respectively.
In addition, transport inflation recently accelerated, mainly driven by higher international oil prices when compared to the corresponding period in 2020. On a monthly basis, overall inflation moderated to 3.8% in May 2021, from 3.9% registered in April. Overall inflation is projected to average around 3.6% for 2021, slightly higher than the previous forecast of 3.2%.
Growth in PSCE averaged 2.3% for the first four months of 2021, lower than the average of 5.8% recorded during the same period in 2020. The slowdown in PSCE was due to lower demand for credit by both businesses and households during the review period. Since the last MPC meeting, year-on-year growth in PSCE rose to 3.1% at the end of April 2021 from 2.1% at the end of February 2021, mainly due to base effects.