Wednesday, June 19, 2013

Namibia holds rate, inflation tolerable despite FX fall

    Namibia's central bank held its repo rate steady at 5.50 percent with inflation "at tolerable levels despite the recent Namibia dollar depreciation" and growth expected to remain below the target.
    The Bank of Namibia, which has held rates steady this year after a 50 basis point cut in 2012, headline inflation was steady at 6.1 percent in May from April while inflation excluding food an energy remained at 3.4 percent "thus suggesting an absence of underlying inflationary pressures."
    "Going forward, Namibia dollar depreciation against major currencies may present an inflation risk," the central bank cautioned.
    Like most emerging markets, Namibia's currency has fallen since early May and is down some 10 percent this year, quoted at 10.05 to the U.S. dollar today from 8.46 at the start of the year.
    A widening trade deficit may affect Namibia's international currency reserves and "warrants monitoring" but for now the central bank said international reserves remain adequate to protect the fixed currency arrangement and other international obligations.
    In April the central bank's governor, Ipumbu Shiimi, said interest rates would be held steady as long as inflation remains low and South African monetary authorities maintain their rates. Any significant difference in rates could result in capital fleeing Namibia to South Africa.
    The central bank said economic growth this year is expected to be driven by increased output in the mining, manufacturing and construction industries.  In April the central bank forecast growth this year of 4.4 percent, down from an estimated 5.0 percent in 2012.


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