Central bank expected to cut repo rate amid low inflation

The Bank of Namibia (BoN) is anticipated to lower its repo rate by 25 basis points to 6.50% from 6.75% following its monetary policy committee meeting this week, according to Simonis Storm economist Almandro Jansen.This decision is driven by subdued inflation, the need to align with regional monetary policy, and efforts to bolster credit growth while cushioning the economy against external trade shocks, particularly from new US tariffs on Namibian and South African exports.“We expect the BoN to reduce the repo rate by 25 basis points, from 6.75% to 6.50%. Our view is based on a combination of subdued inflation, regional policy alignment, the need to stimulate credit growth, and the importance of cushioning the economy against external trade shocks,” he said. Namibia’s headline inflation eased to 3.5% year-on-year in July 2025, down from 3.7% in June and sitting at the lower bound of BoN’s 3–6% target range. Year-to-date inflation is averaging 3.6%, reflecting a generally benign price environment with moderation in food and transport inflation offsetting the impact of higher utility costs. This provides the Bank with room to ease policy without risking a breach of its target.Regionally, the South African Reserve Bank cut its repo rate to 7.00% in July, narrowing the Namibia–South Africa interest rate differential to just 25 basis points, Jansen explained. Alignment“This alignment is important given the one-to-one peg between the Namibia dollar and the South African rand, which relies on maintaining broadly comparable interest rate levels to safeguard capital flows and currency stability. In this context, a measured rate cut would not undermine the peg, while still allowing BoN to respond to domestic economic needs,” Jansen said. The external environment remained a challenge, Jansen noted. According to him, the imposition of US tariffs 30% on South African exports and 15% on Namibian exports creates uncertainty for regional trade and growth prospects. “While these developments could open opportunities for Namibia to diversify trade relationships, they also pose risks of imported inflation, particularly through goods sourced from or transiting via South Africa. In this context, a rate cut would help offset potential demand pressures stemming from weaker external conditions,” Jansen said. “While there are risks such as higher housing and utility inflation from electricity tariff changes, potential food price pressures, geopolitical tensions that could disrupt commodity markets, and possible currency volatility, the current macroeconomic backdrop provides BoN with sufficient scope to act. Lowering the repo rate to 6.50% would deliver timely support to the economy while keeping inflation expectations firmly anchored within the target,” he added.

Central bank expected to cut repo rate amid low inflation

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Republikein 2025-08-13

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Central bank expected to cut repo rate amid low inflation

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