Rising fuel prices, the threat of capital outflows, and the need to protect Namibia's international reserves have prompted the Bank of Namibia to raise its Repo rate by 25 basis points to 7%.
The increase takes the prime lending rate to 10.5%, potentially raising borrowing costs for households and businesses as inflationary pressures mount.
The Bank of Namibia is tightening monetary policy to protect the Namibia dollar's one-to-one link with the South African rand as global energy prices surge and inflation accelerates.
Governor Ebson Uanguta said the Monetary Policy Committee approved the increase after reviewing domestic and international economic conditions.
“Currently, the global economy has shown resilience despite the ongoing energy price shock. Monitored stock markets have experienced losses, while bond yields continue to remain high. Additionally, most key commodity prices have increased compared to the levels observed during the previous Monetary Policy Committee meeting. We have also noted a rise in inflation across monitored economies, leading to a general shift toward a more restrictive monetary policy stance among major central banks.”
The decision also intended to narrow the interest rate gap between Namibia and South Africa, reducing the risk of capital leaving the country and protecting international reserves.
Global inflation has intensified amid geopolitical tensions and a prolonged energy price shock.
Brent crude oil recently climbed to about US$116 a barrel, raising the risk of higher transport costs and further domestic price increases.
Uanguta warned that Namibia's annual inflation accelerated to 5.4% in September, up one percentage point from June.
“This is primarily ascribed to a higher transport inflation that we have observed. Going forward, domestic prices are expected to remain elevated, with headline inflation projected to increase from 3.5% in 2025 to 4.2% in 2026 before slightly easing to 4% in 2027. This forecast represents an upward revision of 0.2 percentage point for 2026 and 0.1 percentage point for 2027, primarily due to the assumption of a prolonged energy price shock.”
The central bank chief maintained that the Repo rate increase is therefore meant to contain inflationary pressures.
However, the decision could put additional pressure on consumers and businesses with existing or new loans as the new Repo rate takes immediate effect.
Borrowers on interest rates linked to the prime lending rate may face higher repayments, depending on their lending agreements.