(Bloomberg) -- The Bank of Namibia cut interest rates for a third time in a row and played down the inflationary impact of the nation’s election, in which the ruling party held power by its slimmest margin since 1990.
The monetary policy committee cut the key rate by 25 basis points to 7%, Governor Johannes !Gawaxab told reporters in Windhoek, the capital, on Wednesday.
“In deciding on an appropriate course of action, the MPC noted the most recent slowdown in inflation and welcomed the medium-term inflation outlook that remained well contained,” !Gawaxab said.
Annual inflation eased to 3% in October from 3.4% a month earlier. It is expected to average 4.3% this year and 4% in 2025, unchanged from the MPC’s previous forecasts, !Gawaxab said.
The governor said he didn’t foresee Tuesday’s election results, which showed the South West African Peoples Organisation narrowly held onto its parliamentary majority in last week’s vote, having any impact on inflation in the near term or the exchange rate as its currency is pegged to the South African rand.
The size of the rate cut was in line with South Africa’s reduction last month. The arid southwest African nation’s currency peg with the rand means its monetary policy often follows the South African Reserve Bank’s actions.
Borrowing costs have diverged when the two nation’s inflation or economic growth paths have deviated. Namibia’s key rate has been lower than South Africa’s since November 2022 and currently differs by 75 basis points.
“We forecast there will be scope for the BoN to cut the repo rate by 25 bps-50 bps in 2025, given our projection of moderate inflation of 3.8%,” Gerrit van Rooyen of Oxford Economics wrote in a note to clients. “We expect South Africa to cut its repo by 75 bps, which will help close the gap between the two rates.”
The cuts should help boost economic growth. The economy is expected to expand 3.5% this year, 0.4 percentage point higher than was projected at the previous MPC meeting, !Gawaxab said. The revision “emanated from a stronger-than-anticipated performance in the primary industry, especially gold mining,” he said.
International reserves increased to 60.9 billion Namibian dollars ($3.4 billion) by the end of October, from 57.1 billion Namibian dollars in September, enough to cover 4.1 months of imports and sustain the peg between the Namibian Dollar and the rand, !Gawaxab said,
--With assistance from Mike Cohen.
(Updates with governor’s election comments in paragraph five and analyst’s in paragraph eight)
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