Central bank announces second rate cut
The Bank of Namibia announced its second rate cut for the year, bringing the repo down to 7.25%, following a 25 basis points reduction this week.The central bank’s decision comes off the back of a disinflation cycle witnessed throughout 2024.
The domestic disinflation cycle continued year-to-date, with inflation averaging 4.6% in the first nine months of 2024, compared to 6% recorded during the same period in 2023.
The decrease in inflation was essentially driven by lower average food inflation, with communication and, most recently, transport inflation also playing a role. Since the previous monetary policy committee (MPC) meeting, inflation has surprised to the downside, falling from 4.6% in July 2024 to 3.4% in September 2024, the lowest since August 2021, mainly due to the deceleration in transport inflation, the Bank of Namibia (BoN) said.
Going forward, the BoN said the medium-term inflation forecast has been revised downward to 4.3% in 2024 and 4% in 2025, compared to 4.7% and 4.4%, respectively, at the previous MPC meeting.
“In discussing the monetary policy stance, the MPC noted the growing momentum in the international monetary policy easing cycle, the retreat in domestic inflation over the medium term, along with the recent downside surprise in the September 2024 inflation print. The MPC also noted that the domestic economy, while growing at a moderate pace, was operating below full capacity, with private sector credit extension remaining subdued. This suggested that further support to the domestic economy is warranted,” the central bank said.
The BoN’s decision was further based on expectations that inflation would be contained over the medium term.
“With the latest public projections indicating a lower and well-contained trajectory for inflation over the medium term and with international reserves at a level deemed robust, the committee unanimously decided to reduce the repo rate by 25 basis points to 7.25% per annum, effective immediately. Concurrently, commercial banks are expected to reduce their prime lending rate by the same magnitude to 11%,” the BoN said.