Research experts, Simonis Storm have said that their expectation is for interest rates to persist at elevated levels, with any potential rate cuts not materializing until the second half of 2024.
The firm was commenting on the Monetary Policy Committee (MPC) of Bank of Namibia announcement last week that they have decided to keep rates unchanged after their 5th meeting for the year.
The repo rate will remain at 7.75% and the prime rate at 11.5%.
“Their decision to keep rates unchanged is primarily rooted in the preservation of the currency peg between the Namibian Dollar and the South African Rand. This step is vital for ensuring a steady influx of imports, which, in turn, supports the broader goal of maintaining stable prices,” said Simonis Storm.
Simonis Storm also bemoaned recent rate hikes highlighting that the current rate hiking cycle has been exceptionally aggressive as the repo rate increased by 400bps in 18 months.
“As a result, domestic financial conditions have tightened due to the recent increase in interest rates. It remains unaccommodating for individuals with limited means, further diminishing the affordability of loans for many,” further explained the firm.
The South African Reserve Bank (SARB) conducted its meeting on September 21, while the Federal Reserve Bank (Fed) held its meeting the day prior, both maintaining their current interest rates. SARB’s decision to keep rates unchanged closely followed the Fed’s lead in maintaining their rates.
“This sequence of events led us to anticipate that the Bank of Namibia (BoN) would likewise opt to keep its rates unchanged today,” the firm said last week.
Looking ahead, the Fed is scheduled to convene once more on the 1st of November, with market expectations leaning towards a pause in rate adjustments. SARB is set to hold its meeting on the 23rd of November.
Private sector credit extension remains weak, averaging 2.7% YTD, compared to 3.5% during the same period in 2022. Businesses being net repayors of their debt played a vital role in the slowed growth in GDP, growing by 3.7% y/y in 2Q2023 compared to 5.3% y/y in 1Q2023. This slowed growth was recorded by contractions in sectors such as agriculture and forestry, construction, financial services as well as public administration and defence, according to Bank of Namibia.
The stock of international reserves has registered a slight decrease, standing at N$53.8 billion. This marks a decline from the N$55.6 billion reported at the end of August 2023 and the N$54.2 billion documented during the previous Monetary Policy Committee (MPC) meeting.
According to Bank of Namibia, the reduction in official reserves is primarily attributed to net outflows from commercial banks and foreign payments made by the Government. At its current level, the stock of international reserves is estimated to cover 5.6 months of imports, thereby retaining its adequacy to uphold the currency peg between the Namibian Dollar and the South African Rand, as well as fulfil the country’s international financial obligations.
Inflationary pressures have moderated in the United Kingdom, the Euro Area, and Japan, with a slight uptick in the United States, while inflation has exhibited an upward trajectory in the majority of key emerging markets. Indeed, other African nations have also implemented hikes in their monetary policy rates since December 2021 in an effort to address inflationary pressures.
“Most central banks, including the South African Reserve Bank, have been to maintain their policy rates at the most recent monetary policy meetings. In general, central banks worldwide anticipate a more extended period of elevated interest rates and remain resolute in their commitment to achieving inflation levels consistent with their respective targets in the foreseeable future,” said Simonis Storm.
Notably, Risks to the domestic economic outlook have intensified since the previous MPC meeting, mainly driven by external factors. The external factors include weakening global economic activity, tighter global monetary policy, geoeconomic fragmentation and continued geopolitical tensions including the recent Israel-Gaza conflict. Risks associated with the supply of electricity in South Africa seem to have recently softened, although challenges continue to persist. Internal risks include the current drought, uncertain rainfall conditions and water supply interruptions, particularly at coastal towns.