WINDHOEK, FEB 8 – The highest annual inflation rate recorded was 6.7% on average in June 2016 from 3.4% in April 2015 approximately. In January 2022, Namibia’s annual inflation rate increased by 4.50%, compared to 4.10% recorded in December 2021.
Inflation, economic growth and interest rate are central and interrelated in macroeconomics. I shall grasp of how inflation and interest rate can affected growth in Namibian economy. Is from this view that gives what has been expressed by various people to the theoretical and empirical relationship that has been estimated between them. In my view as an independent economics and business analyst I strongly believe that the Monetary Policy Committee of the Bank of Namibia will increase the repurchase rate by 25 basis points to 4.00% from 3.75% on the 16 February 2022. Many economists anticipated that MPC will hikes interest rate by 125% bp by end-2022. Driving up such inflation was the rise in the prices for items such as electricity, gas, fuel, food and transport. To policymakers, inflation hampers economic growth and development as it discourages investment and savings.
The effect of inflation and interest rate on economic growth in Namibia is quite a serious problem. Progress toward reducing inequality has been slow and as a result, Namibia remains one of the most unequal countries in the world. Namibia’s past steady economic growth has not been enough to deal with the country’s triple challenge of high poverty, inequality, and unemployment. The weakening of growth in the last few years combined with the COVID-19 shock further put at risk social development progress. There is still a need for the government to create a conducive social and political environment to attract foreign investors in various aspects of the Namibian economy. Namibia economy is growing very slow could be trace back to inflation and interest rate problem. It should be noted that interests are to help in mobilization of financial resources in the promotion of economic growth and development rather than going outside the country seeking for the fund to borrow.
Furthermore, inadequate supply of locally produced and imported commodities, the high price of imported commodities, the high price of imported goods arising from increases in foreign prices being instability of foreign exchange, thereby effecting our economy and its growth.
I must also make a statement to say that irrespective of higher inflation, interest rates have broadly been way too low for too long. Different sectors will be impacted differently and will be the determining factor of how company prices will be affected. Namibians are likely to find themselves paying more for loans this year. Tightening monetary policy raises the costs of borrowing for consumers and businesses, weakening demand and curbing prices. But it could also pinch people’s budgets as the Bank of Namibia continues to normalize policy over the rest of 2022. Money will become more expensive. The Bank of Namibia is realizing that by having so much cheap money available, it is really causing a lot of consumers to spend. Over-expansion of the money supply can also create demand-pull inflation. The money supply is not just cash, but also credit, loans, and mortgages. When the money supply expands, it lowers the value of the dollar. When the dollar declines relative to the value of foreign currencies, the prices of imports rise.
Interest rates returning to more normal levels is not necessarily a bad thing. It generally is a recognition of better economic growth and better economic conditions. But whenever there is change, there is some anxiety that comes with it. The coronavirus isn’t going to be public enemy number One for the economy in 2022. The biggest dangers this year will stem from inflation and the risk that policymakers will call the post-COVID-19 recovery wrong. This is the year we will find out whether the global economy is robust enough to get by with less help from governments and central banks. And whether inflation is a temporary byproduct of COVID -19 or a more persistent problem. It’s taking so long to move on, it may need a kick and markets are now betting the Bank of Namibia will hike interest rates at least three times in 2022. Omicron appears to be more contagious but less deadly than earlier variants. Spikes in infections could still weigh on economic activity in the short term by pushing absenteeism sharply higher. To believe it’s going to take more than a few interest-rate increases to kill inflation, it helps to have the view that supply side problems are only partly to blame for higher prices. Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time Interest rates are the price of money. It is logical to assume that if the price of money increases then the prices of goods will increase.
Suppressing the higher inflation would require deliberate corrective action. I believed the Bank of Namibia had managed the economy well during the COVID 19, effectively used the tools available to it to achieve its goals of maintaining the stability of the currency, ensuring full employment and furthering the economic prosperity and welfare of the people of Namibia. Therefore, I strongly disagree with Global Finance Central Banker’s Report depicting D+ toward Bank of Namibia.
Therefore, an increase in the price level, ceteris paribus, will cause an increase in average interest rates in an economy. In contrast, a decrease in the price level, ceteris paribus, will cause a decrease in average interest rates in an economy. – Josef Kefas Sheehama