Chamwe Kaira
FNB Namibia economists Cheryl Emvula and Helena Mboti expect the Bank of Namibia to keep the repo rate steady at 6.75% over the coming quarters, even as global markets begin pricing in rate cuts.
“As a result, the interest rate differential with South Africa is expected to compress to 25 basis points over the course of the year. Should capital flow pressures intensify, or reserves come under severe strain, the central bank may consider pre-emptive rate adjustments to stabilise inflows and reinforce its commitment to capital flows,” Emvula and Mboti said.
Despite Namibia’s strong trade position, international reserves fell by N$6 billion (US$319 million) between January and May this year. The reserves stood at N$57.4 billion (US$3.1 billion) in May, covering about 3.9 months of imports.
This decline came even as the merchandise trade deficit narrowed by 19.8% to N$11.4 billion (US$328.6 million) in the first five months of 2025, compared to the same period in 2024.
“The disconnect between external trade performance and reserves likely reflects a reduced SACU revenue inflow and subdued foreign investment appetite, reinforcing concerns about the sustainability of reserve buffers. The drawdown also precedes the upcoming US$750 million Eurobond redemption, which will further test Namibia’s external liquidity position,” the economists said.
They added that the Bank of Namibia’s decision to keep the repo rate unchanged at its June Monetary Policy Committee (MPC) meeting signals a strong commitment to defending the NAD/ZAR currency peg and maintaining monetary stability.
Emvula and Mboti said the central bank’s cautious approach reflects moderating inflation, weak domestic credit growth, and increased global uncertainty.
They noted that while the repo rate remains unchanged, the MPC stressed the need to ease borrowing costs to support economic growth.
“Inflation has continued to ease, with the headline rate falling from 3.6% year on year in April to 3.5% in May, driven by lower fuel prices and broad-based disinflation. The MPC assessed inflation as contained for now. While recent trends point to continued moderation, the committee noted upside risks to energy prices from geopolitical tensions and global trade uncertainty, although these may be partially offset by a stronger rand,” they said.
The MPC expressed concern about weak Private Sector Credit Extension (PSCE), despite non-performing loans remaining below 6%. They also raised issues over limited credit transmission into the real economy.
Emvula and Mboti said high lending margins by commercial banks continue to hinder investment and consumption despite a stable repo rate.
“The BoN urged banks to review their pricing structures, noting that the spread between the repo and prime rate in Namibia is 375 basis points, compared to 350 basis points in other Common Monetary Area (CMA) countries. The wider margin means lending rates remain elevated, limiting affordable access to credit despite recent rate cuts,” they said.
