Repo rate holds steady as inflation forecasts rise
Namibia experienced a welcome dip in inflation during the first quarter of 2025, averaging 3.7% compared to the previous year's 5%. However, recent data and revised forecasts suggest this dis-inflationary trend may be short-lived, prompting the monetary policy committee (MPC) to maintain the repo rate at 6.75%.Inflation averaged 3.7% during the first quarter of 2025, relative to 5% in the corresponding period in 2024. The slowdown in inflation was primarily ascribed to lower housing and transport inflation, the Bank of Namibia (BoN) said of the inflation overview based on quarter-on-quarter observations.
However, the domestic dis-inflationary process has started reversing since the last MPC meeting. Inflation edged up to 4.2% in March 2025 compared to 3.2% recorded in January 2025, driven by housing, food, transport, and alcoholic beverages.
"Looking ahead, the average inflation forecasts for both 2025 and 2026 have been revised upwards to 4.2% and 4.5%, respectively, compared to previous forecasts of 4% and 4.4%. The upward revision is primarily due to a weaker exchange rate and higher administered price assumptions," the central bank said.
Despite indicators such as comparatively elevated domestic real interest rates, a sufficient level of foreign reserves, and subdued credit expansion suggesting a potential for further reduction in the repo rate, the MPC recognised the imperative of preventing a substantial interest rate differential within the Common Monetary Area (CMA).
"While the relatively high level of domestic real interest rates, adequate level of foreign reserves and sluggish credit growth suggested the possibility of a further reduction in the repo rate, the MPC was cognisant of the need to avoid significant interest rate differential within the CMA, in the interest of orderly capital flows," the BoN said.
In addition, the MPC considered the substantial trade deficit and the anticipated impact of forthcoming international debt settlements on the nation's international reserve holdings.
"Against this background, the MPC decided to keep the Repo rate unchanged at 6.75%. Commercial banks are accordingly expected to maintain their prime lending rates at 10.5%. This policy stance will continue safeguarding the one-to-one link between the Namibia Dollar and the South African Rand while supporting domestic economic activity," the BoN said.