Namibia’s central bank cuts rate by 25 bps amid weak economy, easing CPI

Namibia’s central bank cut its benchmark repo rate by 25 basis points to 6.75 percent “to support domestic economic activity” amid declining inflation and an increase in international reserves that are sufficient to sustain the currency peg between the Nambian dollar and the South African rand.

It is Bank of Namibia’s first rate cut since August 2012 and the first change in rates since a rate hike in April 2016, and comes a month after the bank cut its 2017 growth forecast to 2.1 percent from 2.9 percent due to uncertainty around a recovery in the price of uranium.

“Activity in the domestic economy remained weak during the first six months of 2017,” the central bank said, adding growth in private sector credit extension (PSCE) continued to slow, with annual growth averaging 8.5 percent in the first six months, down from 12.5 percent in the same 2016 period.

Slower growth in credit, which is in line with general domestic weakness, was due to reduced growth in credit advance to both households and businesses, especially in the form of mortgage and installment credit.

Namibia’s economy shrank by an annual rate of 2.7 percent in the first quarter of this year for the fourth consecutive quarter of contraction in a row, and up from a decline in Gross Domestic Product of 1.4 percent in the fourth quarter of 2016.

The decline in economic activity was mainly reflected in construction, manufacturing, wholesale, retail and transport while there was some improvement in mining and communication as well as livestock.

Namibia’s inflation rate eased to 5.4 percent in July from 6.1 percent in June due to lower food inflation.

The country’s stock of international reserves rose to N$32.7 billion as of July 31 to cover 5.5 months of imports, up from N$24.2 billion as of June 1, mainly due to a repatriation of funds by financial institutions, inflow from the African Development Bank and repayments by the National Bank of Angola.

Namibia’s central bank maintains a one-to-one peg to South Africa’s rand and on July 20 the South African Reserve Bank cut its repo rate by 25 basis points on a worsening outlook for growth.

Against the U.S. dollar, the Namibian dollar was trading at 13.2 today, up 3.8 percent this year.