(Bloomberg) — Namibia’s central bank lifted its key interest rate for a second straight meeting to safeguard its currency peg with South Africa’s rand and help counter inflationary pressures stemming from Russia’s invasion of Ukraine.
The monetary policy committee increased the rate by 25 basis points to 4.25%, Governor Johannes !Gawaxab told reporters in the capital, Windhoek, on Wednesday. That follows a hike in February that started unwinding some of 2020’s extraordinary monetary policy stimulus that was aimed at supporting an economy ravaged by the coronavirus pandemic.
The move comes in the wake of a decision by the South African Reserve Bank last month to raise borrowing costs by a quarter-point. The arid southwest African nation forms part of a common monetary area with South Africa, with the rand legal tender and monetary policy and foreign-exchange rules often guided by the SARB’s actions.
While inflation slowed in February to 4.5%, the central bank sees it averaging 6% this year, up from its previous forecast of 4.4%. That’s after supply shocks arising from the war in Ukraine fanned oil and food prices. Gasoline prices rose 11% in April.
“The monetary policy stance is also a step towards normalizing the current negative interest rate that is conducive to long-term economic growth,” !Gawaxab said.
While the hike should safeguard the nation’s currency peg, curb inflation and bolster the attractiveness of local assets to offshore investors as the U.S. Federal Reserve and other developed market central banks tighten monetary policy, it may temper an already fragile economic recovery.
The bank left its economic growth forecast unchanged at 3%.
International reserves stood at 40.8 billion Namibian dollars ($2.8 billion) at the end of March, compared with 43 billion Namibian dollars a month prior. That’s enough to cover 5.5 months of imports and sufficient to help maintain the currency peg, !Gawaxab said.
