Bank of Namibia cuts Repo rate to historic 3.75 per cent

By Andreas Thomas

Windhoek – The Bank of Namibia’s Monetary Policy Committee (MPC) has decided to reduce the Repo rate from 4 per cent to 3.75, the lowest point on record.

The MPC decided to reduce the Repo rate to a new historic low, following its bi-monthly meeting on 18 August 2020.

Bank of Namibia Governor Johannes !Gawaxab announced the decision of the monetary policy committee on Wednesday.

Before that, the rate fell to the lowest point of 4 per cent in June 2020, as part of the central bank’s effort to cushion the local economy from the devastating impact of the COVID-19 pandemic.

He said the decision was taken following a review of domestic, regional and global economic and financial development. This translates to a cumulative 2.75 percentage points reduction in the Repo rate since the beginning of 2020.

!Gawaxab said the MPC is of the view that at 3.75 per cent, “the rate is appropriate to continue supporting domestic activity while at the same time safeguarding the one-to-one link between the Namibian dollar and the South African rand.”

He said the bank has to balance the need for further monetary stimulus in the face of the COVID-19 pandemic-induced weaknesses of the economy, against the importance to not undermine sound saving and investment in the economy.

In its economic outlook for August 2020 released on Tuesday, the central bank expects the domestic economy to fall into a deeper contraction during 2020, before returning to positive recovery next year.

It predicted the local economy to contract by 7.8 per cent, before recovering to positive growth of 2.1 per cent and 2.7 per cent in 2021 and 2022, respectively.

The data for the first half of 2020 seems to suggest that the impact of COVID-19 on the economy is more severe than anticipated in the April 2020 update.

The bank noted that the likely contraction of 7.8 per cent for 2020 represents a further deterioration from a milder contraction of 1.1 per cent in 2019.

The estimated deeper contraction during 2020 is mainly attributed to the outbreak of COVID-19, which has led to travel restrictions across the world and lockdowns in many countries, including Namibia.

“Risks to domestic growth is currently dominated by the COVID-19 pandemic, especially through uncertainty regarding its expected duration. Risks to domestic growth are dominated by ongoing travel restrictions that are in place for many countries, including Namibia.

Such measures are restricting business activities and causing disruptions to supply. Other risks to domestic growth outlook include the persistently low international prices of Namibia’s export commodities and adverse climatic conditions,” the bank said.

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