In the build-up to the Bank of Namibia’s MPC meeting, we always get a lot of calls from companies, individuals and the media, looking for a view on what the Bank is expected to do.
As we usually do, we discussed this in our morning meeting today, and I personally am of the view that give the recent data releases in the country, a hike is not warranted at the current point in time. The reasons for this view are simple:
- According to the NSA, GDP growth is slowing, coming down from 5.1% in 2013 to 4.7% in 2014.
- PSCE growth remains high, however growth in household borrowing has slowed notably, to just 12.1%, well below nominal GDP growth suggesting household deleveraging relative to income, is taking place. Concern in this regard is that installment credit growth remains high, at 19.2% – very much the current concern of the Bank of Namibia.
- Headline inflation has slowed to just 2.9%, the lowest level in many many years. While much of the demand-pull inflation remains a lot higher than this (often over 10%), the overall price pressure on Namibian’s is relatively low by historic standards.
- Foreign reserves appear to have stabilized, albeit at a relatively low level when assessed in NAD terms. Also, this position is likely to recover further when the country’s new mines start exporting.
As such, while the Bank of Namibia is likely to remain on a rate-normalization path over coming months, there is no urgent need for higher rates in the current period or immediate future. I would thus say that there is a 75% probability of rates remaining flat, and a 25% chance of a 25bp (0.25%) hike. That said, I am notoriously awful at calling the BON moves, so may well be way off.