There is no relief in sight from rising interest rates, amid indications that the Bank of Namibia will announce a major hike come August after SA Reserve Bank Governor, Lesetja Kganyago on Thursday announced a 75-basis points hike, the biggest hike since September 2002.
Namibia’s central bank generally takes a leaf from the SARB to maintain the local currency’s peg to the South African rand.
“We expect BoN to follow with a 75bps hike in August. We view this as a prudent response as falling behind the curve and catching up later might prove to be costly. This is above our expectations of a 50bps hike,” FNB Namibia Group Economist Ruusa Nandago told The Brief.
She said the expected hike by BoN will impact negatively on borrowers, who will have to fork out more towards servicing their loans, while a positive development for investors, who will now earn a higher interest for their investment.
“This bodes well for individuals who have savings and investment accounts as they can earn higher interest on these products. However, it bodes ill for individuals who have loans as the interest payments on these will be higher. Given the pegged exchange rate agreement with South Africa, Namibia will likely follow the interest rate decision by the SARB,” Nandago said.
She added that the government will also feel the effects of the SARB hike, as it will have to allocate more revenue towards serving its debt.
“Generally, a rise in interest rates both domestically and globally implies higher interest payments by governments on debt outstanding. The decision will not impact the ability to borrow per se, but rather make it more expensive and consequently interest payments will take up a higher share of revenue,” FNB Namibia Group Economist said.
The SARB hike wants to cool down inflation by suppressing demand in the economy, after South Africa’s consumer inflation reached 7.4%, the highest level in 13 years.
Importantly, it also needs to keep pace with sharp interest rate hikes in rich countries, particularly the US. If the US hikes rates by more than South Africa, it could destabilise the rand and capital inflows into the country.
The US Federal Reserve looks set to hike its key rate by another 75 basis point rate next week, in an effort to subdue inflation.
