Africa-Press – Namibia. THE 75 basis point increase in the repo rate announced yesterday will further pile pressure on Namibian businesses and individuals who by June this year had borrowed N$115 billion, and will now have to fork out more on their monthly loan repayments
Simonis Storm Securities analyst Theo Klein says tight financial conditions for indebted Namibian households and corporates lie ahead as rate hikes are expected to rise further towards the end of this year and during the first half of 2023.
“We expect rising interest rates, coupled with high rates of inflation to weigh on consumption spending, a key driver of our economy.
“However, early estimates indicate central banks could be cutting policy interest rates as soon as the second half of 2023. So, there may be some respite for consumers in the near future,” he said.
THERE is a need to increase the country’s benchmark interest rate, so that members of the public who are saving money are not disadvantaged, Bank of Namibia (BoN) deputy governor Ebson Uanguta said yesterday.
He said if the prices of goods keep rising, but interest rates remain low, the gap would have savers losing a lot on their hard-earned savings with commercial banks.
Savers have already been earning negative interest since November, and will continue to do so – even with the latest repo rate increase.
Uanguta yesterday announced a 75 basis point increase in the repo rate – now settling at 5,5% – on par with South Africa.
This means the prime rate would now stand at 9,25%, and would most likely push lending rates to above 10%.
A high repo rate, though a pain to borrowers, benefits savers’ piggy banks.
Namibia has a big pool of savings, which for the past months has been competing for allocation on available instruments.
The country’s commercial banks since March last year have been paying interest on savings that are below inflation rates – meaning savers were losing by keeping their funds in bank accounts.
For June 2022, the average interest on savings was a mere 3,56%.
Namibians have saved over N$70 billion in interest-bearing saving instruments, such as call accounts, fixed and notice deposit accounts, and typical saving accounts.
This means since March last year, excluding August, September and October 2021, savings have been in negative territory.
Uanguta said increasing the repo rate was therefore “necessary to narrow the current negative real policy interest rate”.
He said this policy stance is consistent with that of central banks globally and in the region, with policymakers acting with resolve to slow and eventually reverse the current acceleration in inflation.
According to the BoN’s June 2022 monetary statistics, Namibians (households and businesses) have borrowed over N$115 billion spread across many instruments.
Of the instruments, loans to fund properties, be it houses or commercial properties, have the biggest share at N$58,3 billion, and these mostly borrowers will feel the pinch of the increased interest rates.
Vehicle and asset financing stood at N$10 billion, while overdrafts were at N$12 billion.
All borrowers should therefore expect monthly instalments to go up by N$7,5 for every N$1 000 on outstanding loan amounts.
Gerrit van Rooyen, an economist at Oxford Economics, says interest rates should be back to pre-Covid-19 levels before the end of the year.
“We expect that the BoN will raise the repo rate by a further 50 bps to 75 bps by year-end to contain inflation and to support the one-to-one peg with the South African rand,” he says.
This will measure well with further expected inflation rates, which he said will peak to 7,1% during the third quarter of the year, and ease back to 6,5% in the last quarter, consistent with an anticipated moderation in global fuel and food prices.
The deputy governor said at the end of July, the stock of international reserves stood at N$49,2 billion, and estimated to cover 6,1 months of imports, and hence remain adequate to meet the country’s international financial obligations.
The next announcement on the repo rate will be made on 26 October.
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