Central bank hikes repo rate by 75 basis points
From 4.75% to 5.50%
The prime lending rates for local commercial banks increased from 8.50% to 9.25%.
The rate at which commercial banks borrow from the central bank increased by 175 basis points (bps) thus far in 2022. The Bank of Namibia (BoN) at the fourth monetary policy announcement yesterday increased the repo rate by 75 basis points (bps) from 4.75% to 5.50%. That means the prime lending rates for local commercial banks increased from 8.50% to 9.25%.
Speaking at announcement, Ebson Uanguta, deputy governor of the central bank noted that the decision is appropriate to safeguard the peg arrangement and thus anchoring inflation expectations, while meeting the country’s international financial obligations.
Inflation accelerated to an average of 5.3% during the first seven months of 2022, compared to 3.5 %in the corresponding period of 2021. The acceleration was mainly driven by an increase in the inflation for transport, on account of a rise in international oil prices, he pointed out.
On a monthly basis, inflation rose to 6.8% in July 2022 from 6.0% registered in June, mainly due to higher inflation for transport and food in the same period. Namibia’s overall inflation is now projected to average around 5.8% for 2022, with higher rates in the second half of the year than in the first half, Uanguta said.
According to Danie van Wyk, head of research at IJG Securities, high interest rates increase the cost of borrowing money, resulting in indebted consumers having less disposable income to spend on goods and services, which tends to ease inflationary pressures.
Analysis by Simonis Storm indicated that consumers will to pay more on home and vehicle loans.
Outlook
“We currently foresee a 50-bps rate hike at the South African Reserve Bank (SARB’s) September monetary policy meeting (MPC) meeting followed by a 25-bps hike at the November meeting, although there is always the possibility that they could be combined into another 75-bps rate hike in September instead,” Wyk pointed out.
“The Bank of Namibia’s (BoN) mandate to protect the currency peg with the rand means that it has little choice but to follow rate decisions taken by the SARB, despite Namibia’s inflation rate trending somewhat lower than South Africa’s and tighter monetary policy being an unnecessary headwind to economic recovery. That being said, even with another 75 – 100 bps worth of increases, local interest rates will still be accommodative by historical standards,” Van Wyk said. [email protected]