Namibia raises key interest rate to cushion second-round effects from high fuel prices

WINDHOEK, Oct 28 (Reuters) - Namibia's central bank raised its main interest rate on Wednesday to mitigate against second-round effects from high fuel prices and safeguard the currency peg with its neighbour South Africa's rand.

The Bank of Namibia raised its repo rate (NACBIR=ECI), opens new tab by 25 basis points to 7.00%.

Inflation accelerated to 5.4% year on year in September (NACPIY=ECI), opens new tab, its highest level since ⁠January 2024.

Governor Ebson Uanguta told a press conference economic growth was still projected at 2.1% in 2026, supported by recoveries in the agriculture and manufacturing sectors.

However, the impact of lower than average rainfall due to this year's El Nino weather pattern is a downside risk to growth in the arid southern African country.

MORE HIKES TO COME

The central bank now expects inflation to average 4.2% in ⁠2026 and 4.0% in 2027, an upward revision to its forecasts because of the assumption of a prolonged energy price shock.

Namibia's monetary policy decisions typically track those of South Africa, whose central bank also raised interest ⁠rates last month.

Uanguta said policymakers also considered the need to reduce the interest-rate gap with South Africa to stem potential capital outflows and safeguard ⁠the stock of international reserves.

Nedbank economists said before Wednesday's announcement that they forecast another 25-basis-point hike later this year and ⁠potentially another increase in the first quarter of next year as the fuel price shock spreads to broader price pressures.

Reporting by Nyasha Nyaungwa; Writing by Nilutpal Timsina; Editing by Alexander Winning and Keith Weir