Bank of Namibia is likely to leave the repo rate unchanged when its Monetary Policy Committee make an announcement today, analysts say. They base their expectations on the fact that the Bank of Namibia appears satisfied with the cooling down of total household debt and subsidising vehicle sales growth and that the bank would not want to put pressure on households’ spending.
“Bank of Namibia is mindful of the precarious growth outlook, pressure on households and depressed commodity prices. The confluence of the points mentioned above point to [the reserve bank] keeping its repo rate unchanged at 7 percent this week,” commented Ngoni Bopoto, a research analyst at Namibia Equity Brokers.
Analysts also point at the fact that the South African Reserve Bank kept its repurchase rate unchanged at 7 percent in May 2016 and is likely to keep rates stable in the short-term as the US Federal Reserve signals a delay in US interest rate hikes.
“While inflation in South Africa moderated slightly in April, the South African Reserve Bank expects inflation to remain outside the inflation target band until the third quarter of 2017. Surging inflation comes at a time when the South African economy is teetering on the brink of a recession, with the outlook for the year firmly tilted to the bleak side,” commented Suta Kavari, an investment strategist at Capricorn Asset Management.
Kavari’s expectations are for the Bank of Namibia to leave interest rates unchanged which would be a welcome relief to the highly pressured Namibian consumer. “Having achieved its goal of slowing growth in instalment credit, the Bank of Namibia’s hiking cycle has largely been necessitated by the need to align interest rates with South Africa, thus maintaining the one-to-one currency peg. The rate moves were also necessary to prevent likely capital outflows, which could put pressure on the country’s external position,” said Kavari.
Bopoto adds that widespread weakness persists in the South African economy and the recent reprieve from credit rating agencies “allows some breathing room, therefore caution must be exercised not to unduly hurt the economy or push it off the cliff – accordingly we anticipate increased focus on the economic growth object”.
Further, he says in its April 2016 statement the Bank of Namibia announced that it decided to increase the repo rate in order to align interest rates with South Africa to sustain the currency peg and prevent outflows, which could exert pressure on Namibia’s international reserves.
“We believe that SARB’s position as the leader for interest rates in the CMA is absolute. Bank of Namibia is satisfied with the cooling down of total household debt in particular and subsiding vehicle sales growth, and Bank of Namibia is mindful of the precarious growth outlook, pressure on households and depressed commodity prices,” said Bopoto.
With concerns over the strength of the US economy swelling following a dismal jobs report in May, Kavari noted that the US Federal Reserve is widely expected to delay increasing interest rates in the US to September, possibly even December.
Heightened uncertainty regarding Britain’s continued membership of the European Union would have also been factored into the Fed’s thinking regarding concerns about global issues, including the chances of a hard landing in China.
The combination of a weak jobs reading and the concerns over the health of the global economy have quashed any chance of a rate hike in the near term.
“The US Federal Reserve’s delay will provide breathing space in the near term, and we can expect a further stay of rates at the next meeting. But while the respite is highly welcomed, much will depend on the rand’s performance as the year wears on. The exchange rate volatility remains a major concern and one of the biggest upside risks to the inflation profile in both Namibia and South Africa,” said Kavari.