Namibia follows South Africa rate cut to boost shrinking economy

Namibia’s central bank cut its benchmark interest rate for the first time in two years as it seeks to boost the economy and maintain its currency’s peg to the South African rand.

The Bank of Namibia’s Monetary Policy Committee reduced the rate to 6.5% from 6.75%, Governor Ipumbu Shiimi told reporters Wednesday in the capital, Windhoek.

Key insights:

The move follows South Africa’s central bank reducing its repurchase rate to 6.5% last month. Like the other members of the rand’s common monetary area, Namibia’s central bank follows the Reserve Bank’s policy moves very closely and it has diverged from its neighbour's interest-rate decisions only once since 2015.

Namibia’s dollar is pegged to the rand, and while the arid south-west African nation’s economy has contracted for two straight years, a bigger cut that resulted in an interest rate that’s lower than South Africa’s would make it difficult to maintain its reserves and the currency peg.

The central bank and Ministry of Finance have increased the maximum loan-to-value ratios for housing mortgages after the slowdown in the economy, Shiimi said. While he said this was done to shield the financial system against undue risks, it would also boost credit uptake and the property market in an economy that the central bank sees remaining weak for the rest of the year.

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