The Bank of Namibia (BoN) Monetary Policy Committee (MPC) has cut the Repo rate from 4.25 percent to 4 percent, a move which translates to a cumulative 2.50 percentage point reduction since the beginning of the year.
“This decision was taken following a review of global, regional and domestic economic and financial developments. The MPC is of the view that at this level the rate is appropriate to continue supporting domestic economic activity while at the same time safeguarding the one-to-one link between the Namibia Dollar and the South African Rand,” Deputy Governor of the Bank of Namibia, Ebson Uanguta said.
“The MPC had to balance the need for further monetary stimulus in the face of the pandemic-induced weakness in the economy, against the importance to not undermine sound saving and investment decisions in the economy.”
Simonis Storm Managing Director, Bruce Hansen said the brokerage firm’s view called for a reduction of 50 basis points,” as we do believe that we are in crisis mode and decisions should be made accordingly.”
‘We acknowledge that the BoN has been quite supportive and appreciate that monetary stimulus alone will not be enough and have in many occasions conveyed that other tough decisions have to be made to get us out of the economic mire – friendly business policies, state owned enterprise reforms, accountability and governance, effective functioning of state agencies and implementation of recommendations made.”
Hansen, however, said the central bank decision could bring much relief to individuals and businesses with loans.
“This would have brought further relieve to the already depressed consumer and businesses and show support and solidarity. Individuals and businesses with loans will be direct beneficiaries of this move and hopefully business will use this to retain staff and not unnecessarily lay-off staff,” he said.
“It does feel though as if the BoN has taken a middle road with the 25bps rate cut. Showing support but also signaling that enough monetary assistance or stimulus has been given already.”
Cirrus Capital Economist, Robert McGregor also concurred that BoN had room to cut the Repo by 50 basis points in line with last month’s South African Reserve Bank cut, while lower interest rates will benefit those already with loans.
“I think the decision to cut by 25bps is a prudent one. There was scope to cut by 50bps, given the cut in SA last month, but I think that the efficacy of repo rate cuts is severely constrained. Lower lending rates benefit those who are already indebted, but will not aid much in further credit extension as banks will frankly not be willing to lend into such a risky credit environment at such low rates. There is a disconnect between the (administered) rates and the risk being taken,” he said.
“The difference between the Namibia and SA repo rates provides a bit of a buffer, and will also provide a little bit of support to banks. The current issues facing the Namibian economy cannot be rectified by monetary policy; rather it requires steps to address any future fiscal deficits and a rapid shift away from current general policy to move towards improving Namibia’s competitiveness from a business and investment perspective.”
According to the central bank, average growth in private sector credit extension (PSCE) slowed to 5.8 percent during the first four months of 2020, lower than the rate of 6.4 percent recorded over the same period in 2019.
“The slowdown in PSCE was due to lower credit demand by businesses. Since the previous MPC meeting, growth in PSCE slowed to 3.7 percent at the end of April 2020, from 6.7 percent reported in the previous MPC statement.”