The Bank of Namibia’s Monetary Policy Committee (MPC) yesterday kept the repo rate unchanged at 3.75%. The repo rate is the level at which commercial banks borrow money from the central bank and in turn, determines interest rates for consumers.
The central bank is of the opinion that the accommodative monetary policy remains appropriate to support weak domestic economic activity that is still being weighed down by the pandemic, while at the same time safeguarding the one-to-one link between the Namibia dollar and the South African Rand. This is done while meeting the country‘s international financial obligations.
Making the announcement yesterday, central bank governor, Johannes !Gawaxab noted that Namibia’s real gross domestic product (GDP) improved in the second quarter of 2021, while economic activity remained subdued year-to-date.
Moreover, the rate of inflation continued to increase as growth in Private Sector Credit Extension (PSCE) declined. The stock of international reserves remained sufficient to support the currency peg and meet the country’s international financial obligations.
“Economic indicators showed that the domestic economy slowed year-to-date relative to the corresponding period of 2020. The slowdown in economic activity was observed in major sectors such as mining, agriculture, manufacturing, construction, tourism as well as transport and storage. On the contrary, activities in the wholesale and retail trade sector as well as the telecommunication subsector increased during the review period,” !Gawaxab stated.
Going forward, he noted the domestic economy is expected to grow by 1.4% in 2021 and 3.4% in 2022. Risks to the domestic economic outlook in the near-term remain and include sudden surges in Covid-19 cases with concomitant disruptions to economic activity caused by potential pandemic restrictions.
Furthermore, annual average inflation increased to 3.5% during the first nine months of 2021 compared to 2.2% for the corresponding period in the previous year. The increase in inflation was mainly driven by base-effects, food and transport categories.
According to the governor, this was because of supply constraints for certain food categories and a rise in international oil prices. On a monthly basis, overall inflation increased slightly to 3.5% in September 2021 from 3.4% in August.
Namibia’s overall inflation is projected to average around 3.7% for 2021, slightly lower than the previous forecast of 3.9%.
Meanwhile, growth in PSCE moderated to an average of 2.5% for the first eight months of 2021, lower than the average of 4.1% recorded during the same period in 2020. The slowdown in PSCE was due to lower demand for credit by both businesses and households, as a result of slow domestic economic activity during the review period.