The Bank of Namibia (BoN) on Wednesday raised its repo rate by 25 basis points to 4% and many borrowers are wondering how this development will affect their pockets.
The Brief reached out to economic experts to unpack the implications of the central bank’s latest repo rate increase.
IJG Securities’ Eric van Zyl says the BoN’s decision to hike repo rates means the cost of borrowing will go up and thus asset finance such as motor vehicle and mortgage finance will rise with the benchmark rate.
He noted that rising rates will theoretically slow activity in mortgage and vehicle sales markets.
“Again, theoretically property prices should be negatively impacted and people will buy fewer vehicles as it becomes more expensive to do so. However, with the economy having been depressed for so long the relationship between interest rates and credit supply and demand has become slightly more complex to untangle. There has been low activity in the mortgage market for some time now with banks being selective of who they lend to and individuals holding off on purchasing property which is artificially expensive for unrelated reasons,” van Zyl said.
He, however, noted that the rising interest rates may give banks an opportunity and new appetite to lend more freely.
“Rising interest rates may actually allow the banks to lend more freely but it does not remove the pressure many consumers are still under, and thus demand for credit may remain low even as supply improves with rate increases. The extent of interest rate increases is likely to determine the impact on these two markets. We would expect downward pressure on property sales and valuations as well as downward pressure on demand for vehicles due to the magnitude of the rate increases, we expect. If more modest rate hikes materialize the impact on the property market may actually be marginally positive.”
For those with investments, van Zyl noted, the short end of the yield curve will likely rise with the repo rate so money market interest rates should go up.
“The relationship is slightly nuanced as money market rates have already risen over the last few months and thus some of the increase in interest rates may be “priced in” to these investments and a proportionate increase in money market rates may not initially be seen post the rate hike,” said the analyst.
FNB Namibia Group Economist, Ruusa Nandago, said although those with investments will reap better returns, those with debts might have to dig a bit deeper to service their debts.
“On the one hand, higher interest rates will certainly put additional pressure on household income statements and balance sheets as additional resources will need to be diverted towards servicing outstanding debt. Slowing wage growth, continuous job losses and rising inflation, will compound the impact of higher interest rates leading to elevated debt pressures. On the other hand, higher interest rates bode well for earnings on savings and investments as individuals holding these products will now be able to earn a higher return on them.”
Figures from the central bank show that Namibia’s household debt increased by 2.8% to N$61.8 billion in December 2021 from N$60.1 billion in January the same year due to a rise in loans and advances, N$4.6 million daily increase.
