The Bank of Namibia has welcomed South Africa’s recent adjustment to its inflation target, announced on 12 November 2025, reducing it from the previous 3-6 percent to 3.0 percent with a 1 percent tolerance band. This change will consequently affect Namibia as a member of the Common Monetary Area (CMA). The lower inflation target set by South Africa is expected to, among other things, lead to lower inflation and a reduction in interest rates in South Africa over the medium to long term.

An analysis carried out by the Bank of Namibia has found that a lower inflation target of 3 percent in South Africa will result in low and stable long-term inflation in Namibia, which is ultimately good for the objective of price stability. Moreover, the eventual decline in inflation is expected to lead to a reduction in interest rates in the medium term. Mindful of the envisaged benefits of the lower inflation target, the Bank of Namibia welcomes the new target, as this could enhance welfare and macroeconomic stability for Namibia.

Namibia, along with South Africa, Eswatini, and Lesotho, is a member of the CMA, where the currencies of smaller members are all pegged 1-to-1 to the South African Rand. Simultaneously, the Rand is legal tender in Namibia alongside the Namibia Dollar. The CMA agreement further mandates Namibia to ensure that every Namibian dollar in circulation is fully backed by international reserves. In this context, CMA members should align monetary variables, such as interest rates, with those of South Africa to prevent significant capital outflows in search of higher returns in South Africa, given the free movement of capital within the area. Consequently, the smaller CMA countries, including Namibia, are required to align their monetary policies with the anchor economy.