Namibia’s central bank cut its main interest rate by 25 basis points to 6.50% on Wednesday, seeking to stimulate a slowing domestic economy while keeping inflation under control and preserving the peg with the South African Rand.

The decision ends a run of three consecutive meetings in which the lending rate was unchanged. Governor Johannes !Gawaxab said the Monetary Policy Committee had carefully weighed the risk of widening the gap with South Africa’s 7% repo rate, concluding that the adjustment remained within safe limits to contain capital flows.

Economic growth has weakened sharply. Annual GDP expanded 1.6% in the second quarter, down from 2.8% in the previous quarter, as manufacturing, fishing, and agriculture underperformed. Despite the slowdown, the central bank maintained its 2025 GDP forecast at 3.5% and 3.9% for 2026, though analysts warn that downside risks are rising.

Inflation remains moderate, rising slightly to 3.5% year-on-year in September from 3.2% in August. The central bank revised down its inflation projections by 0.2 percentage points for both 2025 and 2026, to 3.6% and 4.0% respectively, citing stronger exchange rate assumptions and lower oil prices.

Economists view the rate cut as a measured step to support domestic demand without undermining currency stability. The move highlights the balancing act central banks in smaller, pegged economies must perform when external conditions and domestic growth pressures collide.