Central bank welcomes SA’s lower inflation target

The Bank of Namibia (BoN) has welcomed South Africa’s decision to lower its inflation target to 3%, saying it is expected to support reduced inflation and interest rates in Namibia over the medium to long term.

In a statement BoN spokesperson Kazembire Zemburuka released on Monday, the bank says the adjustment, announced on 12 November, narrows South Africa’s previous 3% to 6% range to a central target of 3% with a one percentage point tolerance band.

The shift carries direct implications for Namibia as a member of the Common Monetary Area (CMA).

The central bank’s analysis shows the new target is expected to result in low and stable long-term inflation domestically, strengthening price stability.

The bank also anticipates that easing inflation in South Africa should create scope for lower interest rates in Namibia over time.

“Mindful of the envisaged benefits, the BoN welcomes the new target, as this could enhance welfare and macroeconomic stability for Namibia,” it says.

Namibia, South Africa, Lesotho and Eswatini form the CMA, where the smaller economies’ currencies are pegged one-to-one to the South African rand, which also circulates as legal tender in Namibia.

CMA membership requires Namibia to fully back every Namibia dollar in circulation with international reserves and to align monetary variables such as interest rates with South Africa to prevent capital outflows.

“The BoN’s periodic reviews show that the benefits of CMA membership continue to outweigh the costs.

These include price stability, the elimination of transaction costs and exchange rate risks within the CMA, and access to deeper financial markets.

Losses from seigniorage [currency earnings] due to the rand’s co-circulation are offset through a compensation arrangement,” the statement reads.

However, the bank warns that Namibia’s high share of administered prices, such as utilities and transport, may limit the full benefits of South Africa’s lower inflation target.

It says it will continue engaging stakeholders involved in wage and price setting to safeguard domestic price stability.

BoN governor Johannes !Gawaxab says the revised target will reinforce long-term stability and support economic growth by lowering borrowing costs and strengthening investor confidence. – Nampa

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