Interest rates: All eyes on the BoN

Prime lending rate at 11%
Year to date, the Bank of Namibia (BoN) hiked the repo rate by 50 basis points.
Phillepus Uusiku
The third monetary policy announcement for the year by the Bank of Namibia (BoN) is expected to take place tomorrow.

Year to date, the central bank hiked the repo rate by 50 basis points. The rate at which commercial banks borrow from the central bank currently stands at 7.25%. In addition, the prime lending rate for local commercial banks stands at 11%.

Meanwhile, the South African Reserve Bank (SARB) hiked the repo by 125 basis points year to date, 100 basis points more than Namibia.

According to PSG, typically, the BoN favours maintaining a 25-bps buffer above the South African repo to avoid capital outflows, but back in 2008 when inflation was much lower in Namibia than in South Africa, the Namibian repo was a sizeable 150 bps below the South African repo.

“A recovery in the Southern African Customs Union (SACU) receipts combined with higher diamond exports and Heineken's acquisition of Namibia Breweries has seen a jump in foreign reserves in April, which we believe will support another small repo rate increase from the Bank of Namibia.

The stock of international reserves increased to N$51.8 billion in April 2023 relative to the N$48.3 billion at the end of March 2023.

“In our view, the central bank will still increase the repo rate by a further 25 bps,” PSG said.

IJG Securities anticipate a significant boost in foreign reserves due to the sharp depreciation of the Namibian dollar against the US dollar in May. This improvement in the foreign reserve position may provide an opportunity for the BoN to stay on a less aggressive rate hike cycle compared to its counterpart in South Africa, as it seeks to maintain price stability.”

Moreover, Simonis Storm noted that a 25 basis points hike looks very likely and would be the responsible thing to do given the current financial position of the average Namibian household. “This will take the repo rate to 7.50% and we then expect no further hikes for 2023 given the current information at hand.”-phillep@nmh.com.na