The central bank of Namibia kept its repo rate unchanged at 5.50 percent to support economic activity at a time of weak global growth, but signaled concern over rising household debt.
The Bank of Namibia's Monetary Policy Committee, which cut its benchmark rate by 50 basis points at its last meeting in August, said there were signs of improvement in the economy of major trading partners in the next six to nine months, but overall the medium-term outlook was uncertain.
"Pervasive risks to global growth continue to threaten demand for Namibia's exports, and thus growth, foreign exchange reserves and thus import coverage," the bank said in a statement, adding that the current stock of official reserves was healthy and still supporting the currency peg.
The inflation rate, which rose to 6.7 percent in September from 5.8 percent in August, is being pushed higher by food and energy prices and upward pressure is expected to persist for the rest of the year due to rand depreciation, high oil prices on ongoing industrial action in South Africa.
"Despite this, growth in credit to households, particularly for 'non-productive uses' remains of concern as they tend to fund imported goods which depend on foreign exchange reserves," the bank said, adding it "remains vigilant in assessing levels of household debt, and will act on such should intervention be required going forward."
Installment credit, particularly to households, rose 18.1 percent in August, slightly below July's 18.2 percent, and so far this year the average growth in installment credit was 18.1 percent, levels that have not been seen since late 2008, the bank said.
Overdrafts and mortgage credit also continued to growth in August, with overdraft lending up by an annual rate of 12.1 percent and mortgage loans up by an annual 13 percent.
Namibia's economy expanded by a strong 8.9 percent in the second quarter but growth remains largely dependent on export and sustained commodity prices with demand for diamonds expected to play a significant role in determining growth over the next 12 months.
The central bank expects economic growth of 4.2 percent this year, up from 3.8 percent in 2011.
The Bank of Namibia painted a mixed picture of the global economic outlook, saying indicators showed South Africa, the UK and Japan growing while the euro area and BRIC economies (Brazil, Russia, India and China) were contracting. But it also expects an improvement in the next six to nine months, helped by China, the euro zone and the UK.
"While there remains much to be done, it appears that the euro zone is moving towards a solution to the debt crises, improving the outlook for Europe in the medium term," the bank said.