Namibia's central bank left its benchmark interest rate steady for the second time and raised its forecast for economic growth this year and 2021 while maintaining its forecast for inflation.

The Bank of Namibia (BON) kept its repo rate at 3.75 percent, steady since August when it cut it for the fifth time this year to counter the severe contraction in economic activity.

BON has cut its policy rate by a total of 275 basis points in 2020, slightly less than South Africa's 300-point rate reduction.

Namibia's current monetary easing cycle began in August 2017 and since then BON has lowered the rate 325 basis points. Since July 2017 the South African Reserve Bank has cut its rate 350 points.

While the aim of Namibia's central bank's is price stability, its monetary policy framework is underpinned by a fixed exchange rate regime, with the Namibian dollar pegged at a one-to-one rate to South Africa's rand to ensure stable import prices and thus inflation.

Although this peg limits the monetary independence of BON, there is a some stickiness in capital movements, which gives it some discretionary powers to maintain its repo rate a slightly different rate than South Africa and control domestic credit and money supply.

"The MPC is of the view that the rate remains appropriate to continue supporting domestic economic activity, while at the same time safeguarding the one-to-one line between the Namibia dollar and the South African Rand," the bank said of the decision by its monetary policy committee.

Although economic activity in Namibia showed some positive signs of recovery in the third quarter, it has declined in the first 10 months of this year compared with last year and is set to contract by a record amount this year due to the impact of COVID-19.

Namibia's gross domestic product shrank by an annual 11.1 percent in the second quarter of this year, up from a 1.8 percent contraction in the first quarter.

Average growth in private sector credit extension (PSCE) declined to 3.6 percent in the first 10 months of the year from 6.8 percent growth in the same 2019 period, with growth in credit to businesses slowing to 0.8 percent from 8.7 percent last year.

Since the previous monetary policy meeting in October, the central bank said growth in PSCE slowed to 1.4 percent at the end of October from 2.6 percent in August.

In 2019 Namibia's economy shrank 1.4 percent and BON forecast the economy would contract another 7.3 percent this year, slightly better than the 7.8 percent contraction forecast in its October economic outlook.

In 2021 the economy is seen expanding by 2.6 percent, up from the October forecast of 2.1 percent.

Namibia's inflation rate has remained stable this year and eased to 2.3 percent in October from 2.4 percent in the previous two months for an average rate of 2.2 percent in the January-October period, down from 4.0 percent in the same 2019 period, mainly due to lower transport and housing inflation.

BON forecast average inflation of 2.3 percent this year and as of Nov. 30 the stock of international reserves dropped to N$29.9 billion from N$32.7 billion in October but still enough to cover 4.5 months of imports and sufficient to protect the currency peg, BON said.