Bank of Namibia faces pressure to raise repo rate to 7%

**CHAMWE KAIRA **

The Bank of Namibia is facing pressure to raise its repo rate by 25 basis points to 7% at its Monetary Policy Committee (MPC) meeting on Wednesday, as rising inflation and South Africa’s higher interest rates compete with weakening domestic economic growth.

Simonis Storm Research, has estimated a 70% probability of a rate increase from the current 6.75%, arguing that the move would help protect the Namibia Dollar’s one-to-one peg with the South African rand and contain inflationary pressures.

The South African Reserve Bank raised its repo rate to 7.25% on 23 September, leaving Namibia’s policy rate 50 basis points lower.

The currency peg limits the Bank of Namibia’s room to maintain a significant interest rate gap with South Africa, as investors could shift funds to the neighbouring country in search of higher returns, potentially putting pressure on domestic liquidity and foreign reserves.

However, the expected increase comes as Namibia’s economic outlook deteriorates, with the Ministry of Finance’s Mid-Year Budget Review on 22 October revising the country’s 2026 growth forecast down from 3.1% to 2.3%.

Inflation has also accelerated sharply, rising from 2.1% in March to 5.4% in September.

Core inflation, which excludes more volatile price components, reached 4.0%, indicating that price pressures are extending beyond fuel and other volatile items.

Petrol prices increased by N$1.50 a litre on 7 October, adding to pressure on household budgets and business operating costs.

Simonis Storm warned that inflation could rise further, potentially reaching 6.2% around the turn of the year.

Without a rate increase, the real repo rate, the nominal policy rate adjusted for inflation, would fall to approximately 0.55%, weakening the monetary policy stance.

The central bank must nevertheless weigh inflation risks against mounting pressure on key sectors of the economy.

Mining contracted by 3.1% in the second quarter, marking its sixth consecutive quarterly decline. Diamond taxes and royalties are projected to fall to N$414 million, compared with N$5.8 billion in the 2023/24 cycle.

Agriculture is also facing pressure from adverse weather conditions and the foot-and-mouth disease outbreak.

The European Union suspended beef imports from Namibia’s former disease-free zone on 5 October, adding to uncertainty in the livestock industry.

Meanwhile, private sector credit extension accelerated to 5.4%, according to Bank of Namibia data.

The increase was driven partly by corporate overdrafts and short-term instalment credit, reflecting growing financing needs among businesses and households.

Global developments are adding to the pressure. Brent crude oil reached US$116.72 a barrel amid geopolitical tensions, increasing the cost of Namibia’s fuel imports.

Higher United States Treasury yields have also strengthened the attraction of dollar-denominated investments, potentially drawing capital away from emerging markets.

Namibia’s foreign reserves stood at approximately N$58.5 billion, providing a buffer for the currency peg and external payments.

A 25-basis-point increase would likely prompt commercial banks to raise their prime lending rates, increasing borrowing costs for households and businesses already facing higher fuel, utility and other operating expenses, Simonis said.

The firm said the decision therefore presents the MPC with competing priorities: containing inflation and maintaining the currency peg while avoiding further pressure on an economy facing weaker mining output, agricultural risks and slower growth.