Namibia raised its key interest rate to the highest level in almost six years to safeguard its currency peg with South Africa’s rand and rein in inflation after revising its forecasts upwards.
(Bloomberg) — Namibia raised its key interest rate to the highest level in almost six years to safeguard its currency peg with South Africa’s rand and rein in inflation after revising its forecasts upwards.
The central bank’s monetary policy committee extended its longest monetary tightening cycle since 2006, lifting the rate by 25 basis points to 7%, Governor Johannes !Gawaxab told reporters in the capital, Windhoek, on Wednesday.
“The decision was taken to contain inflationary pressure and its second-round effects and anchor inflation expectations,” the governor said.
The nation’s smallest hike since April, follows South Africa’s MPC, which raised rates by the same increment last month.
The arid southwest African nation’s peg with the rand means its rate decisions mostly follow the South African Reserve Bank’s, but they have deviated when their inflation trajectories differ. That happened in November, when Namibia increased borrowing costs by half a percentage point and its neighbor by 75 basis points. The divergence means Namibia’s interest rate is now 25 basis points lower than South Africa’s.
Annual inflation quickened for the first time in five months to 7% in January and is forecast to average 5.3% in 2023, !Gawaxab said. That compares with a previous estimate of 4.9%.
International reserves fell to 46 billion Namibian dollars ($2.55 billion) at the end of January, compared with 48 billion Namibian dollars at the end of December. That’s enough to cover 4.8 months of imports and adequate to support the peg between the nation’s currency and the rand, as well as meet the country’s international financial obligations, !Gawaxab said.
The Bank of Namibia kept its economic growth forecast for 2023 at 2.7%, down from an estimated 3.9% last year.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.