Another rate cut may be on way

THE Bank of Namibia (BoN) yesterday hinted at another interest rate cut as early as next Wednesday, nearly six weeks before the next scheduled rate review date.

This will see a lowering of the Bank’s current repo rate of eight per cent, as well as a cut in commercial banks’ current prime lending rate of 12,75 per cent.Summarising the central bank’s recent rate decisions at the launch the first Monetary Policy Review, BoN Deputy Governor Paul Hartmann showed a slide of the cuts in December, January and April. Following April was the date ‘May 20’ and a question mark.The next monetary policy review is only scheduled for July 1.Explaining his remark, Hartmann said the BoN Executive Committee (EC), also responsible for rate decisions, meets every month – one month to review foreign reserves and the other to review rates. Their meeting this coming Tuesday and Wednesday is meant to monitor reserves management.However, bearing in mind the rapidly changing economic environment worldwide, the EC has the mandate to review rates at the same time and adjust it if necessary, Hartmann said.He also suggested that more rate cuts are in the pipeline.’There is room for more aggressive monetary policy in future,’ Hartmann said.The Monetary Policy Review shows that the level of foreign reserves, the key factor determining a slacker rate policy, justifies another cut.The BoN does not link its rate policy to inflation targeting, as Namibia imports nearly 65 per cent of its inflation from South Africa. Rather, it targets price stability, pegging the local currency to the rand, and therefore monitors foreign reserves closely.The central bank also takes credit growth into account when it decides on rate relief.During the first three months of 2009, foreign reserves reached an all-time high of N$14,4 billion. This is 65,4 per cent higher than the first quarter last year, and is significantly more than the minimum threshold for adequate reserves.Also counting in favour of a rate cut are the latest figures for private-sector credit extension (PSCE), which fell from 11,8 per cent last February to 9,9 per cent this February.’The continuous decline in PSCE provides evidence that domestic demand was contained by the previously less accommodative monetary policy stance,’ the report states.Hartmann made it clear that the BoN is looking out for the consumer in the current economic crisis.Asked about the big difference between rates in South Africa and Namibia, and why the BoN has chosen to diverge from the South African Reserve Bank (SARB) to such a large extent, Hartmann said following the SARB when it starting hiking rates last year would have been ‘irresponsible’.’It would have harmed the consumer,’ he said.South Africa’s repo rate, the rate at which commercial banks borrow from the SARB, currently stands at 8,5 per cent – 0,5 percentage points higher than the BoN’s repo. The prime lending rate in South Africa is 21 per cent compared to Namibia’s 12,75 per cent.The SARB no longer reviews its rate policy on a bi-monthly basis like Namibia. Governor Tito Mboweni decided earlier this year to rather do it monthly to take account of the rapid changes taking place in the global economic and financial environment, and their impact on South Africa’s economy and the outlook for inflation, growth and jobs.jo-mare@namibian.com.na