The central bank’s Monetary Policy Committee (MPC) is expected to reduce the repo rate by 25 basis points (bp) at its February 2025 meeting. This would bring the repo rate to the 2017-2019 average of 6.75%, and would spell some marginal relief for Namibian households. 

The Bank of Namibia’s (BoN) MPC has expressed confidence in Namibia’s stable capital flows and international reserves, which stood at N$63 billion in December 2024, covering 4.2 months of imports or 5.1 months, excluding oil and gas imports. If reduced by 25bp, then Namibia’s interest rate differential with South Africa is likely to remain at 75bp for most of 2025. However, FNB Namibia analysts noted the rate differential may narrow if the South African Reserve Bank (SARB) continues its easing cycle, or if Namibia’s international reserves come under pressure in the latter half of the year.

In a monetary policy report, FNB pointed out that across global markets, many central banks have slowed the pace of their rate-cutting cycles, driven largely by concerns over persistently high inflation, and the effects of elevated nominal rates. 

In South Africa, the SARB recently reduced policy rates by 25bp to 7.50%, responding to relatively contained inflation (compared to the US) that is within the SARB’s 3%-6% target range. The SARB also acknowledged the need for a more neutral stance to support domestic growth, while remaining cautious due to the uncertain global outlook. In 2024, headline inflation in South Africa averaged 4.4%, reaching 3.0% in December 2024. However, the SARB noted that external risks and administered price increases could push inflation to around 4.5% later in the year. 

“We expect the SARB to reduce rates by another 25bp at the next meeting in March. While four out of six MPC members opted for a decrease in policy rates, all members remained concerned about the global outlook. 

Therefore, we expect the SARB to continue its data-dependent approach. The SARB’s latest forecast indicates rates may stabilise around 7.25% in 2025, reflecting a higher-than-expected terminal rate, compared to our forecasts (6.75%), likely due to the increased risk of external shocks, including trade disruptions, global price fluctuations and currency depreciation,” FNB stated. 

Namibia’s inflation rate fell to 3.4% year-on-year (y/y) in December 2024, down from 5.3% in December 2023, largely driven by lower prices for transport, food and alcohol. FNB noted that transport inflation turned negative, reflecting declines in global oil prices, while food inflation remained in a state of disinflation. 

However, inflation in housing, water and utilities rose, presenting upside risks to the overall inflation outlook. Core inflation remained stable at 3.8% y/y in December 2024, slightly down from 3.9% in November, though still exceeding headline inflation, indicating underlying price pressures beyond food and transport.

Moreover, the US Federal Reserve maintained US interest rates in the 4.25%-4.50% range. 

“While inflation in the US remains above the 2% target, it has moderated from pandemic-era highs and continues to trend downward. However, core inflation remains elevated.

Despite a stronger US labour market and global disinflation, Fed chairperson Jerome Powell pointed to potential disruptions from the new US administration’s policies on immigration, tariffs, and taxes,” FNB stated.