Namibia diverges from SA by keeping repo rate steady over worries about reserves

11 Apr 2018 15:50pm
WINDHOEK, 11 APR (NAMPA) - Namibia's central bank, which traditionally tracks South Africa in monetary policy decisions since its dollar is pegged to the rand, said Wednesday it had deviated by keeping interest rates higher over concerns about its low foreign currency reserves.
Namibia is linked to Lesotho, Swaziland and South Africa in a monetary union through the Common Monetary Area (CMA), and the rand is legal tender in the three countries, although they also have their own currencies.
Ordinarily the Bank of Namibia (BoN) would also have cut its repo rate from 6,75 per cent after South Africa reduced its own lending rate by 25 basis points to 6,25 per cent last month, but BoN Governor Ipumbu Shiimi said this would hurt reserves.
“In the CMA, rates are more or less on the same level because money can flow freely between these countries, because if you have different interest rate levels, that can actually trigger money to flow to the country with the highest interest rates.
“Generally, we follow what is happening in South Africa, but if we believe that we should be different because the unique circumstances in Namibia dictate that we should be different, we do that,” he said at a media briefing.
Shiimi said the Bank of Namibia was concerned that international reserves stood at N.dollars 26.1 billion by the end of March, a decline of N.dollars 4.1 billion since December 2017.
“In this case we felt there are risks that will threaten the CMA arrangement and the peg to the rand and therefore to support and safeguard our reserves, we need to keep our interest rate higher than South Africa. We don’t see much risk in this case, if anything, it’s going to be supportive of our decision,” he said.