By Desie Heita
The Bank of Namibia surprised economists and analysts by deciding to leave the bank rate unchanged at 10.5 percent.
The stance by the Namibian reserve bank comes a week after the South African Reserve Bank increased the bank rate by 50 basis points to 12 percent.
Analysts from Investec Asset Managers and Old Mutual Asset Managers had expected Tom Alweendo, the Governor of Bank of Namibia, to similarly increase the bank rate by 50 basis points.
The expectations were based on a need to curb the threat to the foreign exchange reserves, averting the possibility of outflow of funds in the search for higher yields in South Africa, and contain escalating inflation.
Inflation is at 9.7 percent, up from 8.4 percent in March.
“This is, however, not unique to Namibia as inflationary pressure has become a worldwide phenomenon driven largely by external factors,” said Paul Hartmann, Deputy Governor for BoN.
“Liquidity in the local banking system will be negatively affected if rates remain lower than in South Africa,” Johannes !Gawaxab, said ahead of the announcement by the Bank of Namibia (BoN).
However, the Bank of Namibia said the foreign exchange reserves are healthy, at N$9,3 billion against the currency circulation of N$1,3 billion as at the end of March this year. The overall foreign exchange reserves, including those held by commercial banks, are at N$12 billion.
“This implies that foreign exchange reserves were seven times higher than what is required to sustain the currency peg,” said Hartmann.
Hartmann further said there have been no adverse movements of capital flows between Namibia and South Africa since the last two decisions to leave the bank rate unchanged, and lower than that of South Africa.
“In fact, since then there was a further strengthening in the country’s overall reserve position suggesting that inflows have been higher than outflows,” said Hartmann.