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BoN repo rate hike to hit Xmas spending

November 25, 2022
BoN repo rate hike to hit Xmas spending

The Bank of Namibia’s likelihood to increase the repo rate by 75 basis points at the end of November will dampen consumers' spending power during the festive season, Simonis Storm Economist Theo Klein has said. 

This was after the South African Reserve Bank’s (SARB) Monetary Policy Committee on Thursday hiked rates in Africa’s most sophisticated economy by a further 75 basis points, taking the repo rate to 7.00%, increasing the prime lending rate to 10.50% – and Bank of Namibia (BoN) is likely to follow suit. 

Klein told The Brief that another hike will hit Namibians hard as they will now be expected to pay more for their home and car loans, impacting their spending power this coming festive season. 

“Keeping in mind that typical home loans are prime plus one and car loans are prime plus 2, average home and car loan rates will then end the year at about 11.00% and 12.00% respectively. This will weigh on consumer spending as household or consumer incomes have already been faced with high living costs in recent months,” he said. 

The Windhoek-based economist added that Namibians are turning to bank overdrafts to try and meet their upcoming holiday expenses. 

“We therefore expect to see a decrease in consumption spending going forward and potentially an increase in short-term debt instrument advances such as overdrafts and personal loans which could be used to cover certain expenses and also holidays. 

Certain local banks indicate a high demand for overdrafts as clients wish to use debt to finance travel and accommodation in the upcoming festive season,” Klein said. 

He said despite the expected increase in interest rates come the BoN Monetary Policy announcement on the 30th of November, the development was not deterring Namibian businesses from seeking loans with low demand coming from individuals, and banks not as forthcoming amid default concerns. 

“We still see high levels of demand for debt from businesses in various sectors of the economy and within the SME space. However, some–not all–local banks are not as worth coming with loan advances due to risk aversion. Demand is also supported by businesses who are eager to take advantage of opportunities that have risen in recent months. High demand for credit comes despite interest rates having increased significantly. However, from a household perspective, we do see low levels of demand for credit, due to budgetary pressures that have increased from higher food and fuel prices,” the economist said. 

He, however, indicated that an expected interest rate hike will augur well for pensioners and investors who will see a better return on their investments. 

“Namibians who invest their savings in various interest-bearing instruments such as fixed deposits, Treasury Bills or Money Market funds will benefit from rising interest rates. Pensioners and general investors will see a rise in return on investment for these types of instruments and so a rise in their investment income as well. We have seen the rates on certain instruments being more attractive as interest rates rise and provide local savers with better rewards for investing their savings,” he said. 

On whether recession concerns in South Africa should be of concern to Namibia, he said, “currently, South Africa is expected to record economic expansions in 2023. However, growth forecasts are meagre at best, where the South African economy is expected to grow by about 1% in 2023. Namibia’s economic growth is most sensitive to South Africa and the EU’s economic performance, so keeping an eye on growth dynamics in these two regions next year would be crucial. Namibia has a number of domestic growth drivers and should be relatively shielded from slower growth in South Africa in 2023.” 

The latest SARB rate hike marks the eighth hike in the current cycle, with the total adjustment being 350 basis points since the hike cycle started a year ago in November 2021. 

SARB Governor Lesetja Kganyago said the hike comes amid high levels of inflation in South Africa and a volatile global economic outlook for the year ahead. 

The Governor said the central bank expects inflation to be higher for longer, with food price inflation revised upwards to 8.8% in 2022 and 6.2% in 2023, only returning within the target range at 4.2% in 2024.

 

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Last modified on Tuesday, 29 November 2022 10:30
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