The Bank of Namibia’s decision to cut the repo rate by 25 basis points, from 6.75% to 6.50%, marks a cautious yet significant attempt to breathe life into a sluggish economy. Announced by governor Johannes !Gawaxab, the rate reduction comes amid weakening growth, subdued inflation, and rising concern that Namibia’s recovery is losing momentum. For households and businesses already grappling with tight financial conditions, the decision offers some relief. But it also raises deeper questions about whether monetary policy alone can lift an economy facing structural headwinds.
By reducing the repo rate, the central bank makes it cheaper for commercial banks to borrow money. In theory, this should translate into lower lending rates for consumers and businesses. Indeed, commercial banks are now expected to cut their prime lending rate to 10.125%. This means car loans, mortgages, and personal credit should cost slightly less, offering much-needed breathing room for indebted households.
For businesses, particularly small and medium enterprises (SMEs) struggling to stay afloat amid tepid demand, this reduction could ease financing costs and encourage investment. The decision is thus both symbolic and practical, a signal that the central bank acknowledges the squeeze ordinary Namibians are feeling.
Inflation Under Control, But Growth Falters
Governor !Gawaxab justified the decision on the grounds that inflation remains subdued while the economy continues to weaken. Annual inflation averaged 3.6% during the first eight months of 2025, compared to 4.6% in the same period last year. Core inflation, which strips out volatile items such as food and fuel, stabilised around 4.5%, a level the Bank considers comfortable and consistent with price stability.
With inflation well within target and global oil prices easing, the Bank clearly judged that there was room to loosen policy without jeopardising the Namibian dollar’s peg to the South African rand. The move reflects a pragmatic balancing act: supporting growth without stoking inflation or undermining financial stability.
The governor’s remarks paint a sobering picture of the domestic economy. Real GDP growth fell sharply to 1.6% in the second quarter of 2025, down from 3.3% a year earlier. Key sectors such as manufacturing, fishing, and agriculture have underperformed, while early indicators suggest continued softness in the third quarter. In essence, Namibia’s growth engine is sputtering, and monetary policy is being used as a tool to cushion the slowdown.
While the rate cut will be welcomed by borrowers, it is unlikely to ignite a full-blown recovery on its own. Monetary policy can make money cheaper, but it cannot make people spend or businesses invest when confidence is low. Namibia’s economy is facing structural challenges that interest rate adjustments cannot solve: weak productivity, slow diversification, and limited domestic demand.
Private Sector Credit Extension (PSCE), a key measure of lending activity, has improved but remains relatively weak, underscoring that borrowing appetite is still constrained. Many households are already overextended, and businesses continue to face subdued sales. Simply put, cheaper money may not necessarily translate into stronger credit growth or new investment unless other parts of the economy are re-energised.
Moreover, the Bank’s room for manoeuvre is limited. As Namibia maintains a currency peg to the South African rand, its monetary policy must broadly align with that of the South African Reserve Bank (SARB). Any aggressive easing could risk capital outflows and pressure on the peg, a risk the Bank of Namibia is clearly mindful of. The measured 25-basis-point cut thus reflects prudence rather than bold experimentation.
If there is one area where the Bank can take comfort, it is external stability. Namibia’s merchandise trade deficit narrowed by 16.1% to N$17.9 billion during the first eight months of 2025, largely due to rising export earnings from uranium and gold. This improvement, coupled with stable capital outflows, has kept the balance of payments manageable.
International reserves stood at N$54.7 billion at the end of September, equivalent to about 3.6 months of import cover. Although this is a slight decline from July’s N$58.1 billion, it remains adequate to sustain the currency peg and meet international financial obligations. In a global environment marked by uncertainty, maintaining reserve adequacy is no small achievement.
The broader challenge: Beyond interest rates
The real test now lies beyond the central bank. Monetary policy can only go so far; fiscal and structural reforms must do the rest. The government must accelerate its efforts to stimulate productive sectors such as agriculture, manufacturing, and renewable energy, areas with the greatest potential to create jobs and generate exports.
Infrastructure investment, policy consistency, and a clear industrialisation strategy are essential to transform lower borrowing costs into real economic activity. Without these, the repo rate cut will merely act as a temporary cushion, not a catalyst.
The Bank has played its part by easing pressure on households and signalling confidence in the country’s macroeconomic fundamentals. Now, it is up to policymakers to capitalise on this breathing space, to make Namibia not only cheaper to borrow in but also better to invest in.
The Bank of Namibia deserves credit for acting decisively and transparently. The reduction in the repo rate shows responsiveness to changing economic realities and alignment with global monetary easing trends. But this step must be understood for what it is: necessary, not sufficient.
Lower interest rates can help stabilise the economy in the short term, but sustained growth will require innovation, productivity, and public confidence in government policy. If Namibia uses this moment wisely, coupling monetary easing with structural reform, the seeds of recovery could yet take root.
Otherwise, the repo rate cut will simply be another reminder that monetary policy, while powerful, cannot rescue an economy that refuses to reform itself.
