Fuel prices drive rate increase

Ogone Tlhage
  • 6 Hours Ago

The Bank of Namibia has raised its repo rate by 25 basis points to 7%, increasing borrowing costs as rising fuel prices put pressure on inflation and the economic outlook.


The increase, announced on Wednesday, brings the prime lending rate to 10.5%, with potential implications for households and businesses servicing loans.


The Monetary Policy Committee (MPC) said the decision was aimed at safeguarding the one-to-one peg between the Namibia dollar and the South African rand, while limiting the risk of further inflation driven by higher fuel prices.


Brent crude oil recently surged to about US$116 a barrel, its highest level in more than six months, amid heightened tensions in the Middle East.


The central bank warned that the prolonged energy price shock would keep domestic prices under pressure, revising its inflation forecast upwards to 4.2% for 2026, from 3.5% in 2025. Inflation is projected to ease slightly to 4% in 2027.


Annual inflation accelerated to 5.4% in September, one percentage point above the level recorded in June, largely driven by higher transport costs.


The rate increase also comes as Namibia's economic recovery faces mounting challenges. The central bank expects economic growth to improve from 1.7% in 2025 to 2.1% this year, before accelerating to 2.8% in 2027.


However, it warned that the foot-and-mouth disease outbreak, subdued global growth and the possibility of El Niño conditions pose downside risks to the domestic outlook.


The country's external trade position has also deteriorated. Namibia's merchandise trade deficit widened to N$33.5 billion in the first eight months of 2026, compared with N$17.8 billion during the same period last year, as imports increased, particularly mineral fuels.


The MPC said it had also considered the need to narrow the interest rate gap between Namibia and South Africa to limit potential capital outflows and protect international reserves.


Foreign reserves rose to N$59.3 billion at the end of September, from N$58 billion at the end of July, providing an estimated 3.6 months of import cover.


The MPC's next meeting is scheduled for 7 and 8 December.