BoN not soft on inflation, says Old Mutual Namibia

THE Bank of Namibia’s decision of last week to reduce its repo rate by 25 basis points should not be interpreted that the central bank is going soft on inflation, according to Johannes !Gawaxab, Chief Executive of Old Mutual Namibia.

The same goes for the South African Reserve Bank 50 basis point cut in its repurchase rate by 50 per cent on Thursday. The SARB announced the reduction in the repo rate to 7,5 per cent from 8 per cent with effect from Friday, and according to economists, taking the market by surprise.The move immediately sent the rand and Namibian dollar weaker against the US dollar, while bonds firmed sharply.Namibia, whose monetary policy is set by the SARB because the countries belong to in a common monetary area, also reduced its bank rate by 25 basis points to 7,50 per cent.Commenting on the rate reduction, !Gawaxab said it was clearly driven by two considerations.”First is the fact that the short term inflation outlook has improved, thanks to the strong Namibian dollar and rand and an improved outlook for food prices.”The second is clearly growing concern on the part of monetary authorities about the impact on growth and employment of the recent strength of the local currency.Current low inflation and strong currency came at the cost of economic growth and job security.” Given the considerations mentioned by the central bank, !Gawaxab said Old Mutual Asset Management welcomed the decision.He said: “It is a positive surprise which is good for the Namibian economy and we do not expect an increase in short term interest rates over the next six months.” !Gawaxab however added, that from an investment perspective, interest income earned from cash deposits with banks was becoming more unexciting and unattractive and saying investors should seriously consider other asset classes, which include treasury bills, bonds, equities and shares that would offer better returns.South Africa’s rand/Namibian dollar however by yesterday afternoon were reported steady trading at early morning around 6,47 against the US dollar, but still viewed vulnerable after the rate cuts.According to BoN the decision to reduce repo rates by Namibia and South Africa will lead to harmonisation of the two countries benchmark rates.BoN Governor Tom Alweendo also expects that the current monetary stance will create a favourable business environment and boost economic activities.The decision was taken after a meeting that reviewed recent domestic and international economic developments.The SARB announced the reduction in the repo rate to 7,5 per cent from 8 per cent with effect from Friday, and according to economists, taking the market by surprise.The move immediately sent the rand and Namibian dollar weaker against the US dollar, while bonds firmed sharply.Namibia, whose monetary policy is set by the SARB because the countries belong to in a common monetary area, also reduced its bank rate by 25 basis points to 7,50 per cent.Commenting on the rate reduction, !Gawaxab said it was clearly driven by two considerations.”First is the fact that the short term inflation outlook has improved, thanks to the strong Namibian dollar and rand and an improved outlook for food prices.”The second is clearly growing concern on the part of monetary authorities about the impact on growth and employment of the recent strength of the local currency.Current low inflation and strong currency came at the cost of economic growth and job security.” Given the considerations mentioned by the central bank, !Gawaxab said Old Mutual Asset Management welcomed the decision.He said: “It is a positive surprise which is good for the Namibian economy and we do not expect an increase in short term interest rates over the next six months.” !Gawaxab however added, that from an investment perspective, interest income earned from cash deposits with banks was becoming more unexciting and unattractive and saying investors should seriously consider other asset classes, which include treasury bills, bonds, equities and shares that would offer better returns.South Africa’s rand/Namibian dollar however by yesterday afternoon were reported steady trading at early morning around 6,47 against the US dollar, but still viewed vulnerable after the rate cuts.According to BoN the decision to reduce repo rates by Namibia and South Africa will lead to harmonisation of the two countries benchmark rates.BoN Governor Tom Alweendo also expects that the current monetary stance will create a favourable business environment and boost economic activities.The decision was taken after a meeting that reviewed recent domestic and international economic developments.