Bank of Namibia cuts rates due to uncertain economic outlook

Central bank reduces benchmark rate by 50 basis points; says cut necessary to support economy despite inflationary pressure and “rapid” growth in consumer credit

The monetary policy committee (MPC) of the Bank of Namibia has voted to cut rates by 50 basis points to 5.5% to support "ailing" sectors of the economy, but expressed concerns about rising inflation and fast growth in consumer credit.

A statement from the monetary policy meeting, released today (August 22), said the medium-term outlook "continues to be shadowed with heightened uncertainties". "The MPC finds that a measure of monetary policy easing is necessary to support the ailing sectors of the economy," the central bank said.

The statement noted that global growth was expected to slow this year, having a particular impact on Namibian exports. Despite robust growth in most industries, a slowdown in the wholesale and retail trade sectors indicated a more subdued economic environment, the statement said.

The central bank highlighted an upward trend in the rate of inflation, which rose 40bp to 6% in July. Nevertheless, the committee suggested that the rate was likely to remain within "tolerable ranges" for the foreseeable future.

Consumer credit represented an additional risk. "The MPC remains concerned about rapid growth in consumer credit", the central bank said. To address this issue the committee said it was ready to implement "targeted policy actions" as necessary.

In addition to targeting low inflation, the central bank also maintains a currency peg with the South African rand. "The stock of foreign currency reserves remains sufficient and augurs well for supporting the currency peg," the statement said.

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