Namibia holds rate, to slow credit by targeted measures

    Namibia's central bank maintained its repo rate at 5.50 percent, saying an accommodative policy is still needed to support the economy while targeted measures should slow down the growth in installment credit, reduce imports of non-productive goods and address over-indebtedness.
    The Bank of Namibia, which last cut its rate in August 2012, said inflation is projected to increase to 6 percent in 2014 - a level it described as acceptable - from 5.6 percent in 2013, with upside risks mainly from a depreciation of the Namibia dollar.
    Namibia maintains a fixed exchange rate system with its dollar pegged at one to one to South Africa's rand to ensure stable prices of imports from the anchor country. With last month's rate rise by the South African Reserve Bank, the differential between the two countries has been eliminated.
    Namibia's inflation rate was unchanged at 4.9 percent in January from December and the country's international reserves rose to N$18.2 billion at the end of January from N$15.7 billion end December 2013, a level the central bank said was sufficient to support the fixed exchange rate.
    Prospects for Namibia's economy this year "remain encouraging," the bank said, forecasting growth of 5.3 percent in 2014, with growth supported by the construction sector, mining and strong consumer demand.

    In the fourth quarter of 2013, Namibia's Gross Domestic Product expanded by a quarterly 4.3 percent after a contraction of 3.7 percent in the third quarter.
    In December the central bank revised down its 2013 growth forecast to around 4.0 percent from a previous forecast of 4.7 percent due to weak agriculture.
    Some economists had expected the central bank to raise its rates today to avoid the economy overheating and keep down inflation.

    Growth in 2013 - described as satisfactory - was mainly driven by construction, mining and wholesale and retail trade, with construction activities reflecting sizable mining investments in the country's production of minerals, mainly diamonds and zinc concentrate, along with public sector spending. But agriculture remained weak due to drought.

    With its fixed exchange rate regime, any change in Nambia's dollar mirrors the South African rand. Both the Namibia dollar and the rand have declined steadily against the U.S. dollar since early 2011 and in 2013 it fell 19 percent against the U.S. dollar as capital started to flow back to advanced economies from emerging economies.
    This year the Namibia dollar and rand continued to decline through January, falling by 8 percent to 11.37 to the U.S. dollar by Jan. 30 but since then the currencies have rebounded, trading at 10.87 earlier today.
   Growth in private sector credit eased to 14.3 percent by end-December 2013 from 17.0 percent end-December 2012, reflecting lower overdraft credit and no growth in loans and advances to the business sector. However, the central bank said growth in installment credit for individuals remains elevated and warrants "constant monitoring" and it has started targeted intervention to slow it down.
   
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