Namibia raises interest rate 25 basis points to 7% as inflation accelerates to 5.4%
Key Facts
The Bank of Namibia raised its repo rate by 25 basis points to 7.00% on Wednesday, October 28, 2026, in a move it said was aimed at containing the secondary inflationary effects of higher fuel prices and protecting the Namibian dollar’s peg to the South African rand at parity. The decision came as annual inflation accelerated to 5.4% in September, its highest level since January 2024. The bank said, according to Reuters, that the rate increase aimed to "limit the secondary effects of higher fuel prices and protect the currency peg to its neighbor South Africa’s rand." The move raised the prime lending rate to 10.5%, increasing borrowing costs for borrowers. The tightening combines efforts to counter the pass-through of energy costs to domestic prices with maintaining the attractiveness of assets denominated in the Namibian dollar under its peg to the South African currency.
According to Reuters, the bank took into account the narrowing interest rate gap with South Africa to limit capital outflows and protect reserves. After the increase, Namibia’s interest rate was close to South Africa’s 7.25%, with the gap between the two countries narrowing to 25 basis points from 50 basis points before the decision. This convergence places Namibia’s rate adjustment in the context of protecting the currency peg, alongside the response to domestic inflation. The narrowing gap means the benchmark yield in the two countries is now closer, based on figures available at the time of the decision. The coverage reported no immediate response in the foreign exchange market or movement in Namibian assets after the announcement.
The bank revised its average inflation forecasts to 4.2% in 2026 and 4.0% in 2027, after assuming the energy price shock would last longer. Reuters said the higher forecasts reflected this assumption, at a time when September’s reading had reached 5.4% year over year. The 2026 average forecast of 4.2% puts the bank’s annual estimate above the 2027 average of 4.0%. These forecasts show that the impact of energy is present in the bank’s assessment of the price path over both years, not just in September’s reading. The bank linked its revised estimates to the assumption that the energy shock would persist, with the coverage attributing the revision to no other factor.
By contrast, the bank kept its economic growth forecast at 2.1% in 2026, supported by a recovery in the agriculture and manufacturing sectors. But the bank’s governor said below-average rainfall, due to this year’s El Niño weather pattern, posed a downside risk to growth. These agricultural risks put the growth forecast up against the possibility of lower rainfall, while the expected recovery in agriculture and manufacturing continued to support the 2.1% estimate. The rate increase comes as the economy faces both an energy cost shock and climate risks to growth. The coverage reported no change in the growth forecast after the rate decision.