Namibia's central bank maintained its repo rate at 5.50 percent, saying the country's economy performed broadly satisfactory in the first two months of this year and "the prospects for 2014 are encouraging as economic growth is expected to continue and inflation will remain at sustainable levels."
The Bank of Namibia, which last cut its rate in August 2012, maintained its forecast for the economy to expand by 5.3 percent in 2014, supported by a a continued expansion of construction activities and mining - mainly diamond mining - along with strong growth in consumer demand.
In the fourth quarter of 2013 Namibia's Gross Domestic Product grew by 4.3 percent from the third quarter for annual growth of 5.1 percent, down from 13.6 percent in the third quarter. In 2013 growth averaged 4.3 percent and the International Monetary Fund forecasts 4.3 percent growth in 2014.
Namibia's inflation rate rose to 5.3 percent in March from 5.13 percent the previous month, for average first quarter inflation of 5.1 percent, below 6.0 percent in the same 2013 quarter.
"Inflation is anticipated to increase slightly in the second quarter of 2014, although it is expected to remain below 6 percent," the central bank said.
In February the central bank said inflation this year was projected to rise to 6 percent from 5.6 percent in 2013, with upside risks mainly from a depreciation of the Namibian dollar.
Annual growth rate in domestic private sector extension picked up to 15.6 percent in February from 14.3 percent in January and December, mainly due to higher growth in credit to the business sector, mainly overdraft and installment credit. Strong growth in household credit reflects high growth in mortgage loans.
Namibia's international reserves were N$17.5 billion as of April 11, a level the central bank said was sufficient to maintain the fixed one-to-one exchange rate peg to South Africa's rand. At the end of January Namibia's reserves stood at N$18.2 billion.
"Going forward, the rapid growth of imports and the sustained double-digit growth rate in installment credit may put pressure on reserves, thus warranting monitoring," the central bank said.
In February the central bank also warned about strong growth in installment growth for individuals and said it had started targeted intervention to slow it down.
With its fixed exchange rate regime, Namibia's dollar largely mirrors changes in South Africa's rand. Both currencies have depreciated against the U.S. dollar since early 2011 and last year the N$ fell 19 percent against the USD as capital flowed back to advanced economies in anticipation of the U.S. Federal Reserve's gradual withdrawal of asset purchases and stronger growth.
The N$ continued to drop through January but since then it has rebounded as financial markets have calmed. For the year, the N$ is down less than 1 percent, trading at 10.47 to the U.S. dollar today.
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