Bank of Namibia faces pressure to adopt 3% inflation target
The Bank of Namibia (BoN) may soon consider a fixed 3% inflation target, mirroring the South African Reserve Bank’s (SARB) recent projections that such a move could lower interest rates and save billions in debt-service costs over the next decade.
With the Namibia Dollar pegged to the South African Rand, the Bank of Namibia’s monetary policy often aligns with the South African Reserve Bank’s decisions.
However, experts suggest that while the shift is likely inevitable, BoN may take a cautious approach, assessing domestic market conditions before implementing a fixed target.
Simonis Storm economist Almandro Jansen said this was premised mainly on BoN closely mimicking the actions of SARB in its handling of Namibia’s monetary policy stance.
“What happens in South Africa plays out here in Namibia. This decision was taken in Pretoria, so we could see that it could happen in Windhoek,” Jansen said.
“The Namibia Dollar and the South African Rand are pegged, so if Namibia wants to keep that stability and that monetary policy stance with South Africa in making sure that the relationship keeps going, Namibia will have to consider [implementing it],” he added.
Not so fast
Jansen, however, felt that BoN would not necessarily implement a targeted fixed term in the short to medium term but rather over a fixed period.
“BoN will not necessarily have to implement it immediately and mirror what South Africa did, but they will have to consider how inflation is looking, how the domestic market is handling it. With time it will come into play that Namibia will have to follow a fixed target,” Jansen said.
The SARB presented detailed modelling of the impact of a 3% inflation target, compared to the 4.5% level it aims for at the midpoint of its current 3% to 6% target range.
The SARB, which resumed interest rate cuts on Thursday after a pause in March, added that its Monetary Policy Committee felt a 3% target was “more attractive” and said it would continue to consider scenarios based on that target at future rate meetings.
“Investors focused on the implications of a lower target, namely lower inflation, reduced interest rates, bond market inflows, and stronger long-term growth, which further support the rand,” ETM Analytics said.
Other factors that point to more rand resilience include a solid trade surplus, a tight credit cycle and signs of prudence in government finances, the research firm added in a note.
– additional reporting by Reuters
With the Namibia Dollar pegged to the South African Rand, the Bank of Namibia’s monetary policy often aligns with the South African Reserve Bank’s decisions.
However, experts suggest that while the shift is likely inevitable, BoN may take a cautious approach, assessing domestic market conditions before implementing a fixed target.
Simonis Storm economist Almandro Jansen said this was premised mainly on BoN closely mimicking the actions of SARB in its handling of Namibia’s monetary policy stance.
“What happens in South Africa plays out here in Namibia. This decision was taken in Pretoria, so we could see that it could happen in Windhoek,” Jansen said.
“The Namibia Dollar and the South African Rand are pegged, so if Namibia wants to keep that stability and that monetary policy stance with South Africa in making sure that the relationship keeps going, Namibia will have to consider [implementing it],” he added.
Not so fast
Jansen, however, felt that BoN would not necessarily implement a targeted fixed term in the short to medium term but rather over a fixed period.
“BoN will not necessarily have to implement it immediately and mirror what South Africa did, but they will have to consider how inflation is looking, how the domestic market is handling it. With time it will come into play that Namibia will have to follow a fixed target,” Jansen said.
The SARB presented detailed modelling of the impact of a 3% inflation target, compared to the 4.5% level it aims for at the midpoint of its current 3% to 6% target range.
The SARB, which resumed interest rate cuts on Thursday after a pause in March, added that its Monetary Policy Committee felt a 3% target was “more attractive” and said it would continue to consider scenarios based on that target at future rate meetings.
“Investors focused on the implications of a lower target, namely lower inflation, reduced interest rates, bond market inflows, and stronger long-term growth, which further support the rand,” ETM Analytics said.
Other factors that point to more rand resilience include a solid trade surplus, a tight credit cycle and signs of prudence in government finances, the research firm added in a note.
– additional reporting by Reuters
