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Bank of Namibia MPC Unanimously Decided to Cut the Repo Rate by 25 Basis Points to 7.25 Percent.

 

Date: 16 October 2024 
Attention: News Editor 
Ref: 9/6/2 
 
 
 
 
REPO RATE REDUCED FROM 7.50 PERCENT TO 7.25 PERCENT 
 
On the 14th and 15th of October 2024, the Monetary Policy Committee (MPC) of the Bank  of Namibia held its fifth bi-monthly meeting for 2024 to decide on the appropriate  monetary policy stance to be implemented over the next two months. To continue  supporting the domestic economy while simultaneously safeguarding the peg between  the Namibia Dollar and the South African Rand, the MPC unanimously decided to cut the Repo rate by 25 basis points to 7.25 percent. This decision was made following a  comprehensive review of current and expected domestic, regional and global economic  developments. 
 
RECENT ECONOMIC DEVELOPMENTS 
 
Domestic economic activity rose during the first eight months of 2024, although growth  slowed on a quarterly and yearly basis during the second quarter of 2024. Inflation  receded notably, and the projected medium-term inflation path has been revised  downwards. Growth in Private Sector Credit Extension (PSCE) remained subdued. The  merchandise trade deficit widened further, while the stock of international reserves  continued to be sufficient to preserve the currency peg and meet the country’s  international financial obligations. 
 
1. Domestic economic activity rose during the first eight months of 2024 relative to the same  period in 2023. The recovery was broad-based, with notable increases in the miningelectricity generation, wholesale and retail trade, tourism, financial servicescommunication and transport sectors as well as the livestock marketing subsector. The  pace of expansion nevertheless lost momentum. In this regard, the Namibian economy  recorded a slower growth rate of 3.5 percent during the second quarter of 2024, compared  to 4.3 percent and 3.6 percent in the preceding quarter and the corresponding quarter of  2023, respectively. Looking ahead, growth is projected to moderate to 3.1 percent in 2024 and 3.9 percent in 2025, compared to a firmer pace of 4.2 percent recorded in 2023. The  anticipated slowdown is primarily attributed to the weakening primary industry, partly  reflecting the prevailing drought conditions and sluggish global demand.
 
2. Risks to the domestic economic outlook stemming from external factors have intensified,  while those from domestic factors remained broadly unchanged since the last MPC  meeting. External risks include the escalation of geopolitical tensions, especially in the  Middle East, geoeconomic fragmentation and weaker global demand. Internally, drought conditions and water supply interruptions, particularly at the coastal towns, continue to  pose risks. 
 
3. The domestic disinflation cycle continued year-to-date. Inflation averaged 4.6 percent in the first nine months of 2024, compared to 6.0 percent recorded during the same period  in 2023. The decrease in inflation was essentially driven by lower average food inflation,  with communication and, most recently, transport inflation also playing a role. Since the  previous MPC meeting, inflation has surprised to the downside, falling from 4.6 percent  in July 2024 to 3.4 percent in September 2024, the lowest since August 2021, mainly due  to the deceleration in transport inflation. Going forward, the medium-term inflation forecast  has been revised downward to 4.3 percent in 2024 and 4.0 percent in 2025, compared to  4.7 percent and 4.4 percent, respectively, at the previous MPC meeting. The revised  forecast is due to a more favourable outlook for international crude oil prices and a  stronger exchange rate. 
 
4. Since the last MPC meeting, annual growth in PSCE exhibited a modest improvement to  2.1 percent at the end of August 2024 from 1.8 percent at the end of June 2024. However,  the average PSCE growth for the first eight months of 2024 was lower at 2.0 percent,  compared to 2.7 percent during the corresponding period in 2023. The continued sluggish  growth in credit extended to the private sector has been driven by weak demand amplified  by the still prevailing tight lending conditions. Nevertheless, the recent tax relief, 
moderately lower interest rates, and government expenditure could potentially stimulate credit demand going forward. 
 
5. Turning to the external front, Namibia’s merchandise trade deficit widened to N$25.8  billion during the first eight months of 2024, relative to N$21.2 billion in the same period  of 2023. The wider trade deficit was primarily driven by higher import payments, especially  for machinery and consumer goods, which were partly offset by a marginal increase in  export receipts during the period under review.
 
6. The stock of international reserves stood at N$57.1 billion as at the 30th of September 2024 compared to N$60.8 billion at the end of July 2024. The decline was mainly driven  by net commercial bank outflows, customer foreign currency withdrawals, foreign  government payments and the appreciation of the exchange rate. This level corresponds to an estimated import cover of 3.9 months, which remains adequate to sustain the  currency peg between the Namibia Dollar and the South African Rand and meet the  country’s international financial obligations. Excluding oil and appraisal activities, the  import cover stood higher at 4.6 months of imports. 
 
The global economic recovery slowed slightly since the previous MPC meeting,  reflective of subdued growth in the Group of Twenty (G20) countries during the second  quarter of 2024. Global inflation has generally drifted lower since the previous MPC  meeting, while the monetary policy easing cycle has continued to gain momentum. 
 
7. The global economic recovery softened since the previous MPC meeting, with output in  the G20 countries expanding at a slower pace of 3.1 percent during the second quarter  of 2024, down from 3.2 percent in the preceding quarter. Among the monitored  economies, growth was weaker in Japan, China, Russia and South Africa although relatively robust in the United States and India. Looking ahead, the International Monetary  Fund in its July 2024 World Economic Outlook (WEO) Update has projected global output  growth to moderate from 3.3 percent in 2023 to 3.2 percent in 2024 before rising  marginally to 3.3 percent in 2025. This forecast may change in the October 2024 WEO expected to be released next week. 
 
8. Prices of most key commodities rose compared to the preceding MPC meeting. The price  of gold trended higher over the two-month period, buoyed by safe-haven demand.  Likewise, zinc and copper prices increased over the same period, partly due to relatively  lower global interest rates and a weaker US Dollar exchange rate. Furthermore, food  prices were higher largely due to concerns over unfavourable weather conditions in some  key export countries. While the uranium spot price initially fell towards the end of August,  reflecting softening market fundamentals and market rebalancing, it recovered in the subsequent six weeks. Meanwhile, diamond prices have stabilised since the last MPC  meeting, amid increased rough diamond inventories in India. Weaker global demand,  particularly from the United States and China, continuously puts downward pressure on diamond sales. The price of Brent crude oil declined notably up to 10 September 2024 but recovered thereafter. The decline was mainly due to the renewed escalation of the  conflict in the Middle East. 
 
9. Global equity markets rallied since the last MPC meeting, led by the S&P500 and  NASDAQ. The positive momentum has been attributed to fair macroeconomic data,  robust corporate earnings, and expectations of interest rate cuts on the horizon.  Meanwhile, bond yields extended their decline in August and the first half of September  2024 as investors priced in lower inflation rates along with the potential easing of  monetary policy rates. Most recently, however, bond yields surged partly owing to the  escalation of tension in the Middle East and stronger economic data from the United  States. 
 
10. Inflationary pressures have eased in most of the monitored economies since the previous  MPC meeting. In the Advanced Economies (AEs), inflation slowed in the United States  and the Euro Area, while it remained steady in the United Kingdom, but rose in Japan.  Across the key Emerging Market and Developing Economies, inflation outcomes were  lower, except in India where it rose sharply. Over the medium term, global inflation is 
forecast to gradually moderate in 2024 and 2025 from its 2023 high. 
 
11. Monetary policy easing in the monitored economies has gained momentum since the  previous MPC meeting. The US Federal Reserve, the European Central Bank and the  South African Reserve Bank have cut rates at their most recent MPC meetings.  Meanwhile, the Bank of England has paused its rate cut on the back of concerns regarding  inflation in both 2024 and 2025. The Bank of Japan likewise held rates at its most recent  meeting after hiking at the previous meeting to cushion the depreciation of the currency  and contain inflation. On the other hand, the Bank of Russia and the Central Bank of Brazil increased their policy rates to contain inflationary pressures. 
 
MONETARY POLICY STANCE 
 
12. In discussing the monetary policy stance, the MPC noted the growing momentum in the  international monetary policy easing cycle, the retreat in domestic inflation over the  medium term, along with the recent downside surprise in the September 2024 inflation  print. The MPC also noted that the domestic economy, while growing at a moderate pace,  was operating below full capacity, with private sector credit extension remaining subdued. This suggested that further support to the domestic economy is warranted. With the latest projections indicating a lower and well-contained trajectory for inflation over the medium  term, and with international reserves at a level deemed robust, the committee  unanimously decided to reduce the Repo rate by 25 basis points to 7.25 percent per  annum, effective immediately. Concurrently, commercial banks are expected to reduce  their prime lending rate by the same magnitude to 11.00 percent. 
 
13. In deciding on this policy stance, the committee was wary of the renewed widening of the policy rate differential with the anchor country, South Africa, but was comforted by  Namibia’s recent experience of orderly capital flows along with adequate levels of  international reserves. The newly adopted policy stance will continue to safeguard the  one-to-one link between the Namibia Dollar and the South African Rand, while supporting domestic economic activity. 
 
14. The next MPC meeting will be held on the 2nd and 3rd of December 2024. 
 
 
 
Johannes !Gawaxab
 
GOVERNOR
Public 

 

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