Central bank rejects forward guidance on rates

The Bank of Namibia has opted against providing forward guidance on future interest-rate decisions, despite this year’s Nobel Prize in economics highlighting how it could help individuals and businesses plan better.

This follows the central bank’s announcement last week of a 25-basis-point increase in the repo rate.

The position comes as the 2026 Nobel Prize in Economic Sciences has renewed attention on how central banks can influence economic activity not only through interest-rate decisions, but also through what they communicate about future policy.

The Nobel Prize, awarded on 12 October to economists Robert Hall and Michael Woodford, recognised research on how monetary and fiscal policy can help stabilise economies, including the importance of expectations in shaping the decisions of households and businesses.

One of the approaches central banks can use to influence these expectations is forward guidance, where the central bank can communicate their likely future interest-rate direction to help households, investors and businesses plan ahead.

However, Bank of Namibia governor Ebson Uanguta says the central bank was not considering this approach.

He says Namibia’s changing economic environment made it difficult for the central bank to commit to a future policy direction.

“We are data-driven. So if I guide you in that manner and then come December the data has changed, I’m going to lose credibility because I have lied and I should not lie. I should be informed by data,” he says.

This is despite the fact that in economics, almost all things are projections as nothing ever remains the same.

The Nobel research found that central bank communication can help all players in the economy make informed decisions.

Forward guidance does not necessarily require a central bank to promise that interest rates will move in a particular direction.

It can also communicate the conditions under which rates are likely to increase, decrease or remain unchanged.

For individuals and businesses, such information can help inform decisions about borrowing, saving, investment and long-term financial commitments.

The bank’s position is also shaped by Namibia’s exchange-rate arrangement with South Africa.

The governor says Namibia does not directly operate an inflation-targeting framework, as South Africa does.

Instead, the country is anchored to South Africa’s inflation-targeting system while maintaining the Namibia dollar’s one-to-one peg with the rand.

“At any point in time when you see us reducing or increasing interest rates, we want to make sure that the peg remains intact,” he says.

He explains that maintaining the peg requires protecting the country’s foreign reserves, particularly because capital can move freely between Namibia and South Africa.

If Namibian interest rates become too low compared with returns available in South Africa, investors could move their money across the border, putting pressure on the country’s reserves.

Economist Erastus Nghiinomenwa says Namibia’s monetary policy arrangement with South Africa limits the country’s ability to independently determine its interest-rate direction.

He says Namibia had effectively surrendered responsibility for anchoring inflation to South Africa through the currency peg, leaving the South African Reserve Bank to provide the broad monetary policy direction.

“Inflation anchoring is with the South African Reserve Bank; that is the role we gave up in our peg arrangement/monetary policy arrangement,” Nghiinomenwa says.

He says forward guidance from the Bank of Namibia would have limited value because South Africa could make a different interest-rate decision, which Namibia would generally be expected to follow.

“Bank of Namibia cannot provide forward guidance on interest rate direction at all, because South Africa provides the direction. We can only differ in terms of basis points if conditions here domestically call for a different decision,” he says.