Namibia’s central bank chief warned that escalating tensions between the US and South Africa could destabilise its economy, citing the close ties it has with the two nations and the vulnerability of the Namibian dollar, which is pegged to the rand.

President Donald Trump in a February 7 executive order froze all US aid to South Africa over what he falsely claimed were rights violations stemming from a new land-expropriation law, and for its case in the International Court of Justice alleging Israel’s assault in the Gaza Strip was an act of genocide.

Namibia is closely watching the fallout from the dispute, Governor Johannes !Gawaxab told reporters on Wednesday in the capital Windhoek.

“Our currency is pegged to the South African rand, so any impact on the rand will directly affect us,” the governor said. “It’s too early to tell what the full implications will be, but we need to monitor the situation closely.”

!Gawaxab comments were made at a briefing to announce the central bank’s interest-rate decision.

The monetary policy committee lowered the key rate by 25 basis points to 6.75%, marking the fourth consecutive reduction, as inflation remains contained and economic growth has slowed.

The size of the cut was in line with South Africa’s rate reduction last month. The arid southwest African nation’s currency peg with the rand means its monetary policy often follows the South African Reserve Bank’s actions.

“The committee considered the contained nature of inflation and its projected well-contained trajectory over the medium term,” !Gawaxab said. “The decision also took into account the relatively high level of domestic real interest rates and the adequate level of foreign reserves.”

The central bank maintained its average inflation forecast at 4% for this year while revising 2026’s upwards to 4.4% due to exchange rate assumptions.

Economic growth is projected to accelerate to 4% in 2025 from 3.5% projected last year, !Gawaxab said.

International reserves rose to 65 billion Namibian dollars (R65 billion) by the end of January from 60.9 billion Namibian dollars in October, ensuring sufficient coverage for external obligations and currency stability, he said.

BLOOMBERG