Last year, the Bank of Namibia conducted a quantitative analysis of what the potential change in the South African Reserve Bank’s inflation target would mean for Namibia’s GDP and monetary policy.
The findings indicated that South Africa’s adoption of a 3 percent inflation target would result in a lower projected path for inflation and the repo rate in Namibia, compared with the previous defacto target of 4.5 percent at the midpoint of the previous 3-6 percent range.
The central bank explained that the results also suggested that the new target would marginally constrain real GDP growth in the short run.
Overall, the study concluded that the new target would enhance welfare and macroeconomic stability for Namibia over the medium term.
However, to minimise potential output losses, the study recommended that the Bank enhance its communication efforts.
This is also expected to strengthen the central bank’s credibility, thereby effectively anchoring inflation expectations around the new target.
