By Tio Nakasole
Recently on the 4rth of December 2024, the central bank announces the reduced repo rate by 25 bps from 7.25 percent to 7.0 percent. Bank of Namibia being mandated by the Namibia constitution, have prerogative role to play to serve as the state’s principal instrument to control the money supply, the currency and regulate commercial bank in the economy.
This definition will have then a cul de sac conclusion if does not incorporate the involvement of consumers in the rate fluctuation. As much as the central bank has an important role to play, consumers are also equally need to be acquainted on how to hedge, respond and adjust their expenses lifestyle. At the onset let’s demystify into what these announcements mean for the purse of a consumer.
As quarterly announced, the term repo rate, is the rate at which Bank of Namibia lend money to commercial banks such as FNB, or Nedbank to mention but a few. This means as a consumer, with an unchanged repo rate, commercial banks are not obliged to adjust their prime rates on loans, including personal loans, mortgages, and overdraft.
Eventually, in that period, as a consumer you can breathe a sigh of relief as your monthly repayment remain constant until the next quarterly review. This stability provides an assurance and allow you as a consumer to continue with you monthly budgeting as usual without fear of sudden increase in debt servicing costs.
FINANCIAL DISCIPLINE
Inversely, when the fluctuating repo rate, is not favourable to both the borrower which is the consumer and to the lender which is the bank. In other words, it will not be good for the bank as the consumer will fear to borrow especially in the time when the interest rate is so high.
When it comes to the consumer, you don’t need to take it lightly as it will affect your normal usual budget. This is because you will be forced to pay back more than your initial rate agreement, in a situation when you have a variable rate loan that is tied to the prime rate. Therefore, as a consumer, this where the financial discipline then comes in, to make sure that you cut the unnecessary cost.
Equally worthy noting is the adjustment in the fuel price. An unchanged repo rate and an unchanged fuel price per litre offers tangible benefits to you as a consumer. Because for instance a lower fuel costs mean that you as a vehicle owner you can accommodate other expenses in your budget. However, a high price, will curtail your budget from spending more you are conscripted to fuel the same litre at a very high price.
PRUDENCE
Now as you are heading into festive season, what does it means? With the current adjustment on the repo rate is favourable to you as a consumer but that shouldn’t make you to suffer from what we call blind optimism. Economically, there is distinction on what we call needs and wants, upon which an income can be spent on.
Needs are the basic essential for human survival such as food, water, and shelter. Meaning you cannot leave without these therefore are crucial to be at the top of budgeting pyramid. Whereas wants are anything we desire or would like to have, but you can live without them. In this category include things such as clubbing, gambling, vacation, for as long it is not providing back an income or compensate you to in making a living. This is to say even in the aftermath of reduced repo rate, it is crucial to not “bite more than what we can chew” in order to sustain yourself and your family.
The best way to hedge about the uncertainties that may emerge, it is crucial to stay informed and making prudent financial decisions in order to navigate through interest rate fluctuations with confidence while incubating your financial well-being in the long run.
*Tio Nakasole is an Economics Honors degree holder, MBA final student, and a Research Analyst at MONASA Advisory and Associates. The views expressed do not represent those of his employer. – theoerastus@gmail.com
