BoN not concerned about capital outflow

SARB hikes by 0.75%, BoN hikes by 0.50%
The prime lending rates in Namibia and South Africa are aligned at 10.5%.
Phillepus Uusiku
Even though there is a 25 basis points (bps) differential in the repo rate between Namibia and South Africa, the Bank of Namibia (BoN) does not expect much change in terms of capital outflow from the local economy. The prime lending rates in the two countries are now aligned at 10.5%.

Last week, the South African Reserve Bank (SARB) increased the repo rate by 75 basis points from 6.25% to 7%. Yesterday, the Bank of Namibia hiked the repo rate by 50 basis points from 6.25% to 6.75%.

Despite the difference in the repo rate in the two countries, the prime lending rates are aligned because of the difference in the interest rate spread. The interest rate spread in Namibia is 3.75%, and 3.50% in South Africa.

Year to date, the Bank of Namibia increased the repo rate 300 basis points (bps). In January 2022, the repo rate stood at 3.75%, and the prime lending rate at 7%.

Speaking at the last monetary policy announcement for the year 2022, the governor of the BoN Johannes !Gawaxab noted that the monetary stance is appropriate to continue anchoring inflation expectations and safeguarding the one-to-one peg arrangement between the Namibian dollar and South African rand. He further stated that the monetary stance it is necessary to narrow the current negative real policy interest rate.

According to the Namibia Statistics Agency (NSA), inflation came in at 7.1% in October 2022, the same rate recorded in September 2022.

“Namibia’s average inflation rate rose to 5.9% during the first ten months of 2022, compared to 3.5% in the corresponding period of 2021. The rise in inflation was mainly driven by an increase in transport inflation, on account of high international oil prices and weak exchange rate.”

Namibia’s overall inflation for 2022 is projected to average around 6.1%, before slowing to 4.9% in 2023, !Gawaxab said.

In South Africa, !Gawaxab noted that inflation remained significantly above the upper limit of the South African Reserve Bank’s inflation target range of 3% to 6%. “We don’t target inflation in Namibia,” he said.

Fin24 recently reported that inflation in South Africa picked up to 7.6% in October 2022, from 7.5% recorded in the previous month. The main contributors to inflation were food and non-alcoholic beverages, which increased 12% on a year-on-year basis and transport, which was up