Repo rate cut surprising – Simons Storm

Simonis Storm says a decision by the Bank of Namibia (BoN) to cut the repo rate by 25 basis points has caught it unaware and leaves Namibia trailing South Africa by 75 basis points. The BoN has usually kept its repo rate in tandem with that of the South African Reserve Bank.

"Who would have thought? In its fourth monetary policy announcement of the year, the Bank of Namibia surprised many by cutting the interest rate by 25 basis points, bringing it down to 7.50% and the prime rate to 11.25%," Simonis Storm said.

"This move leaves Namibia trailing South Africa by 75 basis points. It is the first rate cut since the hiking cycle began in June 2022, and while the rate is still relatively high, it’s pleasant news for Namibian households and businesses, offering some relief from the cost of borrowing. We initially expected rates to remain unchanged in this meeting, with a cut anticipated later in the year. However, the Bank of Namibia had other plans," Simonis Storm added.

Diverging from the usual

Meanwhile, Bloomberg reported that Namibia's repo rate decision was a split from the mirroring that is occurring in South Africa with regards to how it controls inflation in that country.

The BoN adopted a different approach instead, with its decision, for the first time this year, to not align the repo rate in tandem with that of the South African Reserve Bank, in an attempt to boost economic growth.

This is in contrast to South Africa, which has yet to announce a reduction in the repo rate.

Namibia’s monetary policy often tracks that of its neighbour because of its currency’s peg to the rand, but they have deviated when their inflation trajectories differ, such as in April last year.

The median estimate of 11 economists in a Bloomberg survey is for South Africa to cut rates in September. Namibia’s central bank expects inflation to average 4.7% in 2024 and 4.4% next year, down from an earlier forecast of 4.9% and 4.5%, respectively.

- Additional reporting by Bloomberg