BoN wary of rising inflation

IN order to strike a balance between fostering sustainable economic growth, reducing inflation and building foreign exchange reserves, the Bank of Namibia (BoN) has once again resolved to keep its bank rate unchanged.

The reserve bank has opted to keep the repo rate, at which it lends money to commercial banks, unchanged at seven per cent, Governor Tom Alweendo announced after the monetary policy committee meeting on Thursday. The decision was in line with that made by the South African Reserve Bank’s monetary policy committee on the same day.Alweendo, however, added that the central bank remained concerned about the high international oil price, saying it could have “second-round effects” on the already rising inflation.”In this regard it (BoN) will continue to monitor domestic and international economic developments and will make the necessary adjustment in the bank rate when deemed appropriate to achieve the objective of price stability in Namibia,” said Alweendo.The BoN Governor noted that inflation, although low, had slowly been on the rise since the last three months.The annual inflation rate for August shot up to 2,2 per cent from 1,7 per cent of July and 1,3 per cent of June.The average inflation rate during the first eight months stood at 1,8 per cent – relatively lower than an average rate of 4,2 per cent registered during the corresponding period of 2004.Despite the fact that inflation has been low, Alweendo warned that the inflation outlook had been on an upward trend due to higher oil prices.Soaring oil prices have been the cause of the rising cost of fuel this year and have also been blamed for the acceleration of the inflation rate in recent months.As said by the BoN earlier this month, Alweeendo noted that the economy had experienced a slowdown during the second quarter – April to June – recording a growth of 1,1 per cent compared to 2,4 per cent of the same period of last year and 4,1 per cent registered in the first quarter of 2005.He also said the main real sector indicators, such as the number of livestock marketed and the production of base and precious metals, during July and August proved that economic activity had improved compared to the corresponding period of 2004.Although diamond production performed dismally, decreasing by 34,1 per cent, other areas are said to have remained favourable on account of the accommodative monetary policy stance, which could signal an improvement in real economic activities.Due to data still being gathered, Alweendo said there was still uncertainty about the gross domestic product growth in the third quarter, as the “full picture is not known”.The decision was in line with that made by the South African Reserve Bank’s monetary policy committee on the same day.Alweendo, however, added that the central bank remained concerned about the high international oil price, saying it could have “second-round effects” on the already rising inflation.”In this regard it (BoN) will continue to monitor domestic and international economic developments and will make the necessary adjustment in the bank rate when deemed appropriate to achieve the objective of price stability in Namibia,” said Alweendo.The BoN Governor noted that inflation, although low, had slowly been on the rise since the last three months. The annual inflation rate for August shot up to 2,2 per cent from 1,7 per cent of July and 1,3 per cent of June.The average inflation rate during the first eight months stood at 1,8 per cent – relatively lower than an average rate of 4,2 per cent registered during the corresponding period of 2004.Despite the fact that inflation has been low, Alweendo warned that the inflation outlook had been on an upward trend due to higher oil prices.Soaring oil prices have been the cause of the rising cost of fuel this year and have also been blamed for the acceleration of the inflation rate in recent months.As said by the BoN earlier this month, Alweeendo noted that the economy had experienced a slowdown during the second quarter – April to June – recording a growth of 1,1 per cent compared to 2,4 per cent of the same period of last year and 4,1 per cent registered in the first quarter of 2005.He also said the main real sector indicators, such as the number of livestock marketed and the production of base and precious metals, during July and August proved that economic activity had improved compared to the corresponding period of 2004.Although diamond production performed dismally, decreasing by 34,1 per cent, other areas are said to have remained favourable on account of the accommodative monetary policy stance, which could signal an improvement in real economic activities.Due to data still being gathered, Alweendo said there was still uncertainty about the gross domestic product growth in the third quarter, as the “full picture is not known”.