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Fouche Brand, a market analyst at Bank Windhoek, one of Namibia's largest retail chains, said that the decision by the central bank to deviate from its usual policy of tracking monetary policy events in South Africa could have negative consequences for the Namibian economy.
Namibia's central bank a week ago said it would not raise its benchmark rate, currently at 10.5 per cent, saying that previous rate hikes had led to a slowdown in domestic market consumption.
The central bank in December last year deviated from its usual policy of tracking decisions taken by the central bank in neighbouring South Africa by keeping its lending rate unchanged.
South Africa's central bank, which increased its benchmark rate by half a point to 12 per cent in June determines the direction of monetary policy in the common monetary union which also includes Lesotho and Swaziland.
Brand said Tuesday that the decision had raised eyebrows in Namibia's financial sector, adding that Namibia and South African economies were intertwined on various levels, justifying a common monetary policy.
The Namibian currency is pegged one-to-one with the South African rand.
"Different monetary policies between the two countries could seriously jeopardise the currency peg or cause significant capital outflows," Brand said.
"One would therefore expect BoN to try and prevent any such adverse movements in an effort to ensure overall financial stability in the country. Also the worsening inflation outlook in Namibia, as in the rest of the world, should further incite monetary tightening as has been the case in South Africa," he said.
Inflation surged from 9.7 per cent in May this year to 11.9 per cent in July, which could still go up, BoN governor Tom Alweendo said last Thursday.
The analyst warned that if the current policy trend of the central bank persisted, it might erode the profitability of local financial institutions and in the end they might resort to raising bank charges.
Brand said that the central bank should consider the stability of local banks, a dding that not raising rates could 'impair the Namibian banking system.'
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