Repo reduction welcomed
CLAUDIA BOAMAH
Relief has finally been granted to the Namibian economy which has struggled over the last year within the tight policy environment. The Bank of Namibia cut the repo rate by 25 basis points to 6.75% in line with the South African policy rate.
The dire condition of the domestic economy as evinced by: the recession, falling inflation, high unemployment and weak credit growth has long since necessitated rate cuts. However, the central bank also had to keep in mind the protection of the Namibian dollar’s link to the rand. Fortunately, recent data on the level of our international reserves indicates that the peg can be sustained for almost half a year thanks to injections from the National Bank of Angola and the African Development Bank loan.
Economic activity has slowed down significantly in the last year as can be concluded from weakness in credit growth, the Bank of Namibia reports that the private sector credit extended grew by 8.5% in the first half of this year compared to 12.5% during the same period in 2016.
Furthermore, the economy contracted by 2.7% during the first quarter while the unemployment rate is currently estimated at 34% percent. While necessary, fiscal consolidation had adverse consequences for the construction industry and other industries within the secondary and tertiary sectors also weighed down on overall growth. Inflation has consistently declined on a monthly basis since the 8.2% high in January; in July it finally fell to 5.4% which is within the preferred range of 6% to 3%.
A 0.25% reduction is welcome considering the above; however, monetary policy will have to be relaxed a little more to stimulate private demand and business activity. Most central banks in developed economies have turned dovish which tilts interest rate differentials in our favour and supports capital inflows.
The outlook for global growth is quite positive which couldn’t have come at a better time in light of the recovery in the agricultural and mining industry. As usual there are a few factors that could thwart our growth prospects; on the international front we have to look out for rising protectionist sentiment and closer to home we will have to pay close attention to the political developments of our southern neighbour.
Relief has finally been granted to the Namibian economy which has struggled over the last year within the tight policy environment. The Bank of Namibia cut the repo rate by 25 basis points to 6.75% in line with the South African policy rate.
The dire condition of the domestic economy as evinced by: the recession, falling inflation, high unemployment and weak credit growth has long since necessitated rate cuts. However, the central bank also had to keep in mind the protection of the Namibian dollar’s link to the rand. Fortunately, recent data on the level of our international reserves indicates that the peg can be sustained for almost half a year thanks to injections from the National Bank of Angola and the African Development Bank loan.
Economic activity has slowed down significantly in the last year as can be concluded from weakness in credit growth, the Bank of Namibia reports that the private sector credit extended grew by 8.5% in the first half of this year compared to 12.5% during the same period in 2016.
Furthermore, the economy contracted by 2.7% during the first quarter while the unemployment rate is currently estimated at 34% percent. While necessary, fiscal consolidation had adverse consequences for the construction industry and other industries within the secondary and tertiary sectors also weighed down on overall growth. Inflation has consistently declined on a monthly basis since the 8.2% high in January; in July it finally fell to 5.4% which is within the preferred range of 6% to 3%.
A 0.25% reduction is welcome considering the above; however, monetary policy will have to be relaxed a little more to stimulate private demand and business activity. Most central banks in developed economies have turned dovish which tilts interest rate differentials in our favour and supports capital inflows.
The outlook for global growth is quite positive which couldn’t have come at a better time in light of the recovery in the agricultural and mining industry. As usual there are a few factors that could thwart our growth prospects; on the international front we have to look out for rising protectionist sentiment and closer to home we will have to pay close attention to the political developments of our southern neighbour.
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