Namibia's Stagnant Repo Rate: A Haven for Yield in a Volatile Region

The Bank of Namibia's decision to hold its repo rate at 6.75% since April 2025, despite global and domestic headwinds, has created an intriguing backdrop for fixed-income investors in Southern Africa. While other central banks in the region have adjusted rates in response to shifting inflation and growth dynamics, Namibia's cautious stance reflects a deliberate balancing act between maintaining currency stability and nurturing bond yield opportunities. For investors seeking refuge in a region prone to currency volatility, Namibian government bonds now present an attractive proposition—if the central bank's strategy holds.

The Case for Caution: Why the Repo Rate Remains Stagnant

The Bank of Namibia (BoN) has paused its easing cycle since April 2025, halting what had been a gradual decline in rates from 7.0% in late 2024. This pause, despite declining headline inflation to 3.6% in April, stems from three key concerns:

1. Core Inflation Resilience: While headline inflation has cooled—driven by lower fuel costs—core inflation (excluding food and energy) remains elevated at 4.0%, signaling persistent underlying price pressures.
2. Global Uncertainties: Trade tensions, tighter global financial conditions, and the risk of capital outflows have prompted the BoN to avoid further easing until external risks abate.
3. Currency Peg Stability: Maintaining Namibia's fixed exchange rate to the South African rand requires aligning policy rates closely with South Africa's central bank. With the South African Reserve Bank (SARB) cutting its repo rate to 7.25% in May 2025, the BoN must avoid a widening gap that could destabilize its currency peg.

The BoN's strategic patience is also reflected in its medium-term outlook: it forecasts inflation to edge higher to 4.5% in 2026, while GDP growth for 2025 is now projected at 3.5%–4.0%, down from earlier estimates due to weak credit demand and global trade frictions.

Currency Stability: A Shield Against Regional Volatility

Southern Africa's currencies have faced significant pressure in 2025, with the rand, kwacha, and kwacha (Zambia) fluctuating sharply amid inflation swings and fiscal imbalances. However, Namibia's hard-pegged currency offers a rare anchor in this turbulence.

The peg ensures Namibia's currency moves in tandem with the rand, which has stabilized slightly in 2025 due to South Africa's fiscal reforms. This stability reduces foreign exchange risk for investors holding Namibian bonds, unlike in countries where currencies float freely—and often erratically.

Bond Yield Opportunities: A Yield Pickup in a Low-Interest World

For fixed-income investors, Namibia's stagnant repo rate has created a rare yield advantage. While South Africa's central bank has cut rates to 7.25%, Namibia's 6.75% rate—and the BoN's reluctance to follow suit—has left its government bonds offering higher yields relative to peers.

As of June 2025, Namibia's 10-year government bond yields hover around 6.8%, compared to 5.9% in South Africa and 5.2% in Botswana. Even when adjusted for inflation expectations, Namibia's real yields are among the highest in the region—a compelling draw for investors seeking income without excessive currency risk.

Risks and Considerations

While the opportunity is clear, investors must weigh three key risks:
1. External Shocks: Commodity price swings (Namibia is a major exporter of uranium and fish) or a sudden global capital outflow could pressure the rand peg, forcing the BoN to raise rates abruptly.
2. Inflation Rebound: If core inflation exceeds the BoN's 4.5% 2026 forecast, rate cuts could be delayed further, compressing bond prices.
3. Structural Weaknesses: High unemployment and slow credit growth limit domestic demand, which could constrain economic resilience if global conditions worsen.

The Investment Case: A Strategic Bet on Stability

For yield-seeking investors with a medium-term horizon, Namibian government bonds offer a compelling risk-reward profile:
- Currency Safety: The rand peg reduces foreign exchange volatility, a critical advantage in a region where currencies are prone to sharp swings.
- Relative Value: Yields remain attractive compared to South Africa and Botswana, even if Namibia's growth is modest.
- Central Bank Credibility: The BoN's cautious approach has so far avoided overextension, suggesting it will prioritize stability over aggressive easing.

Conclusion: A Regional Safe Harbor for Yield Hunters

Namibia's stagnant repo rate is a testament to the BoN's focus on anchoring stability in an uncertain world. While the rate pause reflects caution, it also creates an environment where fixed-income investors can capitalize on relatively high yields with limited currency risk. For portfolios seeking income in Southern Africa, Namibian bonds now stand out as a pragmatic choice—provided investors remain vigilant to external shocks and inflation dynamics.

In a region where volatility often overshadows opportunity, Namibia's cautious stance may just be the shield investors need to capture yield without crossing into risky territory.