The Bank of Namibia (BoN) raised its repo rate by another 25 basis points to 4.25% on Wednesday, the second hike in a row as it seeks to reduce second-round effects from sharply rising inflation.
The latest increase means that Namibian and South African repo rates, which affect the cost of borrowing, are now at par at 4.25%.
FNB Namibia Group Economist, Ruusa Nandago, said the development will hit borrowers in the pockets, but provides a boon for investors.
“The implication of a higher repo rate is that it filters through to all other interest rates in the economy including the prime rate, mortgage rate, lending rate, deposit rate and rates earned on investments. While on the one hand higher interest rates will add further pressure on the household and corporate balance sheets of borrowers, they are on the other hand beneficial for investors and savers who will earn higher rates on these products,” she told The Brief.
Clarinda Kavezuva, a Research Analyst with First Capital said the BoN hike will drive up the prime lending rates for local commercial banks from 7.75% to 8.0%, increasing the interest rates that commercial banks and other lenders will charge consumers.
“Unless consumers have a fixed interest rate, they will pay more on loans. Households that are looking to purchase houses & vehicles through the bank or lending from the bank are expected to pay more than they could have a year ago (April 2021) year on year ,when the repo rate was 3.75%. In short, the cost of borrowing increases,” she said.
“Although, increase in interest rates would place households in a very bad position, this is also good news for net savers and investors. This means that interest rates on savings/investments will edge up. Furthermore, the Bank of Namibia as the central bank and as a regulator will continue using the repo rate as a tool to control inflation. The central banks will increase the repo rate to deter commercial banks from borrowing from the central bank. This overtime will reduce money supply in the economy which then lowers inflation rate.”
PSG Namibia Research Analyst, Shelly Louw, said the BoN decision is expected to encourage savings, being consistent with the 25 basis point hikes in the repo rate, reducing the risk of larger increases in future.
“Namibia’s repo rate (considering today’s announced hike) is now on par with South Africa’s. Usually, it is preferred that Namibia have a slightly higher repo rate than its Southern neighbour in order to mitigate the risk of capital flight. Higher interest rates are supposed to encourage savings which in turn should support economic growth,” she said.
Louw said it is preferred that the repo rate was not hiked at a faster pace, as recommended by two members of the Monetary Policy Committee.
“Namibia’s inflation is largely imported at this stage through higher global fuel and food prices, and is not significantly driven by local demand recoveries in general at this stage. The repo rate decisions do not only take into account the most recent inflation figures (of 4.5% year on year for February 2022 in Namibia), but more importantly also consider future inflation expectations. We have seen further increases in Namibian fuel prices since February’s inflation figures were announced, for example. In order to keep future inflation contained the repo rate was increased. It is worth remembering that the central bank has a mandate to promote price stability in the country,” she said.
Simonis Storm Economist, Theo Klein forecasts BoN to hike the repo rate by another 75bps before the end of the year.
