BoN backs lower SA inflation target
STAFF REPORTER
The Bank of Namibia (BoN) welcomed South Africa’s ongoing discussion and potential move towards a lower inflation target, following a recent analysis, which suggests a shift from the current 3–6% band to a target closer to 3% would be beneficial.
This change, if implemented, will consequently affect Namibia as a member of the Common Monetary Area (CMA). The adoption of a lower inflation target by South Africa is expected to, among other things, lead to lower inflation and a reduction in interest rates in South Africa over the medium to long term.
An analysis carried out by the Bank of Namibia has found that a lower inflation target, such as 3%, in South Africa would result in low and stable long-term inflation in Namibia, which is ultimately good for the objective of price stability. Moreover, the eventual decline in inflation is expected to lead to a reduction in interest rates in the medium term. Mindful of the envisaged benefits of the lower inflation target, the Bank of Namibia welcomes the prospect of this new target, as this could enhance welfare and macroeconomic stability for Namibia.
Namibia, along with South Africa, Eswatini and Lesotho, is a member of the CMA, where the currencies of smaller members are all pegged 1-to-1 to the South African rand. Simultaneously, the rand is legal tender in Namibia alongside the Namibia dollar. The CMA agreement further mandates Namibia to ensure that every Namibia dollar in circulation is fully backed by international reserves. In this context, CMA members must align monetary variables, such as interest rates, with those of South Africa to prevent significant capital outflows in search of higher returns in South Africa, given the free movement of capital within the area.
Consequently, the smaller CMA countries, including Namibia, are required to align their monetary policies with the anchor economy.
The Bank of Namibia (BoN) welcomed South Africa’s ongoing discussion and potential move towards a lower inflation target, following a recent analysis, which suggests a shift from the current 3–6% band to a target closer to 3% would be beneficial.
This change, if implemented, will consequently affect Namibia as a member of the Common Monetary Area (CMA). The adoption of a lower inflation target by South Africa is expected to, among other things, lead to lower inflation and a reduction in interest rates in South Africa over the medium to long term.
An analysis carried out by the Bank of Namibia has found that a lower inflation target, such as 3%, in South Africa would result in low and stable long-term inflation in Namibia, which is ultimately good for the objective of price stability. Moreover, the eventual decline in inflation is expected to lead to a reduction in interest rates in the medium term. Mindful of the envisaged benefits of the lower inflation target, the Bank of Namibia welcomes the prospect of this new target, as this could enhance welfare and macroeconomic stability for Namibia.
Namibia, along with South Africa, Eswatini and Lesotho, is a member of the CMA, where the currencies of smaller members are all pegged 1-to-1 to the South African rand. Simultaneously, the rand is legal tender in Namibia alongside the Namibia dollar. The CMA agreement further mandates Namibia to ensure that every Namibia dollar in circulation is fully backed by international reserves. In this context, CMA members must align monetary variables, such as interest rates, with those of South Africa to prevent significant capital outflows in search of higher returns in South Africa, given the free movement of capital within the area.
Consequently, the smaller CMA countries, including Namibia, are required to align their monetary policies with the anchor economy.
