Windhoek – Namibia’s central bank on Wednesday defied its South African counterpart, marking the first independent monetary policy decision in over a year. The Bank of Namibia slashed its key interest rate by a quarter-point to 7.5%, a move aimed at bolstering the country’s economy.
The decision comes as Namibia anticipates a further cooling of inflation. In contrast, South Africa has held firm on its monetary policy stance.
Historically, Namibia’s monetary policy has closely mirrored that of its neighbor due to the Namibian dollar’s peg to the South African rand. However, divergent economic conditions, such as those in April last year, have prompted temporary deviations in the past. This latest split widens the interest rate gap between the two countries to 75 basis points.
Central bank governor, Johannes !Gawaxab, expects the rate differential to be short-lived. As Namibia’s monetary easing cycle progresses, the gap between the two countries’ interest rates is projected to narrow.
Meanwhile, Namibia’s economic outlook is tempered by a slowdown in the primary sector and ongoing drought conditions. The central bank forecasts growth to decelerate to 3.1% this year from 4.2% in 2023. Despite these challenges, the rate cut is intended to stimulate economic activity.
On a positive note, Namibia’s foreign exchange reserves have strengthened. By the end of July, reserves stood at N$60.8 billion, sufficient to cover 4.1 months of imports. This reinforces the stability of the Namibian dollar against the rand.
As for inflation, the central bank anticipates an average of 4.7% this year, easing to 4.4% in 2025. This is a downward revision from previous forecasts.
Economists surveyed by Bloomberg generally expect South Africa to follow suit with a rate cut in September.
