The Bank of Namibia is expected to enact a 0.75 percentage point interest rate increase on Wednesday as it seeks to tamp down runaway inflation.
Namibia’s central bank, which will announce its Monetary Policy Statement this week, generally takes a leaf from the South African Reserve Bank (SARB) to maintain the local currency’s peg to the South African rand. The SARB increased its interest rates by 75-basis points to 5.5% last month, the biggest hike since September 2002.
“The BoN is likely to mirror the South African Reserve Bank’s latest policy decision to hike interest rates by 75bps when the next Namibian monetary policy rate announcement is made on August 17,†PSG Namibia said.
In June, BoN increased interest rates 50 basis points, catapulting the repo or benchmark rate to 4.75%. Now there are concerns that interest rates will close the year in the region of 6.5%, pushing the prime rate above 10%.
PSG Namibia forecasts the central bank to hike the repo rate by a further 125bps by year-end, a development which will negatively impact 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.
“We expect that the Bank of Namibia (BoN) will raise the repo rate by a further 125bps to 6% by year-end, in order to contain inflation and to support the one-to-one peg with the South African rand. The increases in interest rates and inflation this year will act as a significant strain on household consumption and weigh on business conditions,†added the financial services group.
This comes as FNB Namibia Group Economist Ruusa Nandago also previously forecasted a 75bps hike in August.
“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,†she said.
Simonis Storm Economist, Theo Klein also expects BoN to follow the SARB decision to hike the repo rate by 75bps.
“It is likely for Bank of Namibia to follow with a similar rate hike at their next meeting in August. This will weigh heavily on indebted households who already battle with higher living costs, as real disposable incomes deteriorate with rising inflation,†he said in the research firm’s credit report for June.
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