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Namibia: Rates Stay Put
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Namibia Economist (Windhoek)
ANALYSIS
11 April 2008
Posted to the web 11 April 2008
Chamwe Kaira
Windhoek
Is Namibia planning to de-link its currency from the South African Rand? This was the question local financial analysts were asking on Thursday this week when the Bank of Namibia snubbed the South African Reserve Bank by maintaining its interest rates unchanged.
This week, the South African Reserve Bank raised its repo rate by 50 basis points to 11.50%. Namibia has since independence in 1990 followed South African decisions on monetary changes.
But that was until January this year.
"It also shows that our economic fundamentals are better than South Africa," said a respected Windhoek-based analyst, who did not wanted to be named.
The Bank of Namibia left the bank rate unchanged at 10.50%, governor Tom Alweendo said. He said the bank was concerned about inflation risks emanating from supply side factors, such as increases in administered prices and high crude oil prices, coupled with high food prices. He said the bank was also worried about major uncertainties in the global economic outlook and their potential impact on the Namibian economy.
"Despite these risks to the inflation outlook, the bank, however, noted the continuous moderation in the domestic demand conditions showing that the current monetary policy stance has been successful in suppressing domestic demand and has, therefore, decided to keep the bank rate unchanged at 10.50% per annum for the time being," he said.
Alweendo said the Common Monetary Area region has been relatively insulated from the direct effects of the sub-prime crisis. But due to slower growth in the world's economy, these countries' economies were also growing at a slower pace than under normal circumstances.
"In the CMA region, the risk to the outlook is further exacerbated by higher inflationary pressures and regional power shortages. Fortunately, commodity prices that determine, to a large extent, the growth in these economies have been holding up, albeit in part due to supply side constraints," he said.
He said inflation has continued its upward trend since the last monetary policy meeting in January. The annual rate of inflation increased moderately from 7.8% in January to 7.9% in February 2008.
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"The main sources of inflationary pressures continued to be food and transport prices. However, even if food and transport inflation are excluded the annual rate of inflation shows an increasing trend, thus confirming the presence of second round effects," he said.
Alweendo said food prices increased at an annual rate of 15.6% in February from 15% in January, while transport inflation remained relatively high at 7.5% during February 2008.
The higher transport inflation is directly related to increases in fuel prices and in the cost of public transport during the month of February, he said.
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