Wednesday, June 17, 2020

Namibia cuts rate 4th time in 2020 as economy shrinks

    Namibia's central bank lowered its benchmark repo rate for the fourth time this year, saying this decision balances the need for further monetary stimulus in the face of the pandemic-induced weakness in the economy against the importance of not undermining savings and investment decisions.
    The Bank of Namibia (BON) cut its rate by another 25 basis points to 4.0 percent and has now cut it by 250 points this year, less than the South African Reserve Bank (SARB), which has cut its key rate by 275 points.
    Namibia pegs its Namibian dollar to South Africa's rand at a one-to-one rate, which means it typically tracks changes in South Africa's monetary policy.
     "The MPC (monetary policy committee) is of the view that at 4.00 percent the repo rate is appropriate to support domestic economic activity while at the same time safeguarding the one-to-one link between the Namibia dollar and the South African rand," BON said.
     As of May 31, Namibia's stock of international reserves had risen to N$33.7 billion from 33.0 billion on March 31, enough to cover 5.1 months of imports.
     Economic activity in Namibia contracted in the first four months of the year as compared with last year, affecting mining, manufacturing, wholesale and retail trade, transport and tourism sectors, and BON said it expects the economy to contract further in 2020.
     In the first quarter of this year Namibia's gross domestic product shrank 2.59 percent from the previous quarter for an annual contraction of 0.8 percent, while average growth in private sector credit expansion (PSCE) slowed to 5.8 percent in the first four months, down from 6.4 percent year-on-year.
     Last year Namibia's economy contracted by 1.1 percent due to severe drought and weak mining activity and the government has forecast a 6.6 percent contraction this year.
     Inflation in Namibia rose to 2.1 percent in May from 1.6 percent in April and is projected to average around 2 percent this year, BON said, adding the average inflation rate in the first 5 months of this year was 2.1 percent as compared with 4.4 percent in the same period last year.
    Today's policy decision is the first under the central bank's new governor, Johannes Gawaxab, who took over on June 1 as the bank's third governor since its founding in 1990.
     Gawaxab succeeded Ipumbu Shiimi, who served for 10 years as BON governor and was appointed finance minister in March.
     In addition to the role of governor, Gawaxab will also chair the bank's board of directors.
     On assuming his job, Gawaxab was quoted as saying he believes the bank's mandate is more than just monetary policy and financial stability but also on delivering on an economy that provides prosperity to Namibia.


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