Namibia has raised its key interest rate for the first time in six years, safeguarding its currency peg with South Africa’s rand.
The monetary policy committee lifted the rate by 25 basis points to 4%, Governor Johannes !Gawaxab told reporters Wednesday in the capital, Windhoek. That follows a decision by the South African Reserve Bank last month to raise borrowing costs by the same amount, also to 4%
The arid southwest African nation forms part of a common monetary area with South Africa, in which the rand is legal tender and monetary policy and foreign-exchange rules are often guided by the actions of the Reserve Bank.
While Namibia hasn’t experienced the same speed of acceleration in inflation as its neighbor, it did quicken to a three-year high of 4.6% in January and is expected to average 4.4% this year and 4.5% in 2023, !Gawaxab said.
The rate increase — the first since April 2016 — unwinds some of the 2.5 percentage points of easing announced since 2020 to prop up the nation’s coronavirus-ravaged economy that the central bank sees expanding 3% this year.
This comes just a few days after Rand Merchant Bank’s (RMB) Markets Research team, predicted Namibia’s economy will record a 3% growth on the back of new mining activities from Debmarine which are expected to boost offshore drilling plus diamond activity onshore will add to sectoral growth.
“On the back of this, we expect growth in 2022 to come in at 3.0% before lifting further to 3.5% in 2023 as some of the energy projects come online,” Daniel Kavishe, Africa Economist at RMB.
However, he cautioned that an overarching risk for the country remains Covid-19 and its effects on both the healthcare sector and the wider economy. With only 16% of the eligible population fully vaccinated, additional waves have the potential to significantly slow the country’s economic momentum and derail efforts of a broad-based recovery.
Read also; Namibia Begins Exporting Meat to the US.
