Chamwe Kaira
The Bank of Namibia (BoN) has welcomed South Africa’s new inflation target, announced on 12 November, which lowers the previous 3 to 6% range to 3% with a 1% tolerance band.
Director of strategic communications and international relations, Kazembire Zemburuka, said the decision will affect Namibia as a member of the common monetary area (CMA).
He said the lower target is expected to lead to lower inflation and a reduction in interest rates in South Africa over the medium to long term.
He said BoN’s analysis shows that a 3% target in South Africa will result in low and stable long-term inflation in Namibia, which supports price stability.
Zemburuka said the expected decline in inflation should also lead to lower interest rates over time.
“Mindful of the envisaged benefits of the lower inflation target, the Bank of Namibia welcomes the new target, as this could enhance welfare and macroeconomic stability for Namibia,” he said.
Namibia, South Africa, Eswatini and Lesotho are members of the CMA.
Their currencies are pegged 1-to-1 to the South African rand, which is legal tender in Namibia alongside the Namibia dollar.
Under the CMA agreement, Namibia must ensure that every Namibian dollar in circulation is fully backed by international reserves.
Member states also align monetary variables such as interest rates with South Africa to avoid capital outflows, as capital moves freely within the area.
Smaller CMA countries are required to align their monetary policies with South Africa as the anchor economy.
Reviews by the Bank of Namibia continue to show that CMA membership benefits Namibia.
These benefits include price stability, low and stable inflation, the removal of transaction costs and exchange rate risks in intra-CMA trade, and access to deeper financial markets.
The loss of seigniorage due to the co-circulation of the rand is offset by a compensation arrangement.
The high share of administered prices in Namibia’s inflation basket, according to Zemburuka, may limit the full benefit of South Africa’s lower target.
BoN governor Johannes !Gawaxab said the tighter target will support long-term stability.
“By committing to tighter price stability, the new target will help entrench disinflationary discipline across the economy, reduce long-term borrowing costs, and strengthen investor confidence over the medium to long term,” he said.
He added that stable inflation narrows the gap between nominal and real interest rates, which supports households, eases financing for firms and strengthens economic growth.
Caption
Johannes !Gawaxab
