We are not out of the woods yet - !Gawaxab
Governor of the Bank of Namibia Johannes !Gawaxab says that there is growing concern among the public regarding the persistent cost of living challenge. "We have been decisive and remain committed to our mandate to combat inflation,"!Gawaxab said at the second meeting Central Monetary Area (CMA) Governors meeting in Swakopmund.
According to him, headline inflation in the CMA remains elevated and averages 6.4% for the first quarter of 2023, however, the nature of the inflation challenge is changing. "We are seeing a decline in the inflation rate as shocks that drove up inflation wane, and our monetary policy actions are transmitted to the economy. We are not out of the woods yet, but inflation expectations appear to be anchoring. I have no doubt that we will all stay the course to bring inflation down to where it belongs," he said.
!Gawaxab explained that the world is facing near stagflation. "Geopolitical fault lines are clearer than ever before. The war between Russia and Ukraine is ranging on unabated, while competition and tension between the superpowers – US and China – are intensifying. Policymakers are facing a unique constellation of challenges. On the one hand, central banks all over the world have been fighting to bring inflation back under control: prices are rising too fast, albeit decelerating in most recent times. On the other hand, financial vulnerabilities are widespread. Each of these challenges – inflation and tight financing conditions, by itself would be difficult to tackle, their combination is a daunting challenge," he said.
"The dominance of the US Dollar as a reserve currency has become topical again. Many are mooting alternative currency regimes for international trade. We all are familiar with the idea of the exorbitant privilege of the US Dollar. One of the key arguments for the exorbitant privilege is that the USA is able to run persistent trade deficits without experiencing the same consequences as other countries. This is because other countries are willing to hold US Dollars as a reserve asset, which increases the demand for US dollars in the international market. The US is able to borrow at lower interest rates than it would be able to otherwise since other countries are effectively subsidizing its debt,"!Gawaxab said.
He further noted that alternative currencies, such as the BRICS currency or a continental currency for Africa, are also mooted. "Any alternative reserve currency needs to satisfy the criteria around convertibility, liquidity, rule of law, and deep capital markets. The fact that the oil is priced in the USD is another key consideration in this debate. We are following the debate around alternative currencies, knowing that a lot of water will have to flow into the ocean before the status quo changes. The transition to a new reserve currency, if it happens, is a slow process, much like a snail’s race. Another debate that ranges around currencies is about an African currency. To achieve this, we know that macroeconomic convergence is a prerequisite. To achieve this noble objective, we need similarities in inflation, debt levels, fiscal policies, and banking rules to mention but a few,"
The weakness of the Rand in most recent times has led to intense debates in countries participating in the CMA. The spillover effects have been acute as most of our smaller countries are net importers of goods and services. We shouldn’t shy away from pointing this out and reflect on mitigating strategies in light of the direct but varied impact in each of our countries. Whilst acknowledging these concerns, it is the considered view of the Bank of Namibia that the benefits of its membership in the CMA outweigh the costs,"!Gawaxab added.
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According to him, headline inflation in the CMA remains elevated and averages 6.4% for the first quarter of 2023, however, the nature of the inflation challenge is changing. "We are seeing a decline in the inflation rate as shocks that drove up inflation wane, and our monetary policy actions are transmitted to the economy. We are not out of the woods yet, but inflation expectations appear to be anchoring. I have no doubt that we will all stay the course to bring inflation down to where it belongs," he said.
!Gawaxab explained that the world is facing near stagflation. "Geopolitical fault lines are clearer than ever before. The war between Russia and Ukraine is ranging on unabated, while competition and tension between the superpowers – US and China – are intensifying. Policymakers are facing a unique constellation of challenges. On the one hand, central banks all over the world have been fighting to bring inflation back under control: prices are rising too fast, albeit decelerating in most recent times. On the other hand, financial vulnerabilities are widespread. Each of these challenges – inflation and tight financing conditions, by itself would be difficult to tackle, their combination is a daunting challenge," he said.
"The dominance of the US Dollar as a reserve currency has become topical again. Many are mooting alternative currency regimes for international trade. We all are familiar with the idea of the exorbitant privilege of the US Dollar. One of the key arguments for the exorbitant privilege is that the USA is able to run persistent trade deficits without experiencing the same consequences as other countries. This is because other countries are willing to hold US Dollars as a reserve asset, which increases the demand for US dollars in the international market. The US is able to borrow at lower interest rates than it would be able to otherwise since other countries are effectively subsidizing its debt,"!Gawaxab said.
He further noted that alternative currencies, such as the BRICS currency or a continental currency for Africa, are also mooted. "Any alternative reserve currency needs to satisfy the criteria around convertibility, liquidity, rule of law, and deep capital markets. The fact that the oil is priced in the USD is another key consideration in this debate. We are following the debate around alternative currencies, knowing that a lot of water will have to flow into the ocean before the status quo changes. The transition to a new reserve currency, if it happens, is a slow process, much like a snail’s race. Another debate that ranges around currencies is about an African currency. To achieve this, we know that macroeconomic convergence is a prerequisite. To achieve this noble objective, we need similarities in inflation, debt levels, fiscal policies, and banking rules to mention but a few,"
The weakness of the Rand in most recent times has led to intense debates in countries participating in the CMA. The spillover effects have been acute as most of our smaller countries are net importers of goods and services. We shouldn’t shy away from pointing this out and reflect on mitigating strategies in light of the direct but varied impact in each of our countries. Whilst acknowledging these concerns, it is the considered view of the Bank of Namibia that the benefits of its membership in the CMA outweigh the costs,"!Gawaxab added.
[email protected]
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