Interest rate hikes on the horizon – PSG


PSG Namibia says the country will see more interest rate increases on the short-term horizon. The firm says this is because of expectations of further monetary policy tightening.

It said the hikes will be due to the tight monetary situation in South Africa, Namibia’s biggest trading partner, with local inflation edging higher towards 2016 and instalment credit growth remaining high.

“In fact, growth in instalment credit is currently at a faster pace compared to when the BoN first lifted the repo rate in July last year to counteract the expansion.”

“In fact, growth in instalment credit is currently at a faster pace compared to when the Bank of Namibia first lifted the repo rate in July last year to counteract the expansion,” said Eloise du Plessis, analyst and equity expert at PSG Namibia.
Du Plessis said there is not much in the Bank of Namibia statement that was not known previously. This includes a positive economic growth outlook for 2015, not too much concern about inflation, and a continued focus on private credit growth.

The Bank of Namibia has already lifted the repo rate by 100 bps over the past year to combat this issue and cited in the post-meeting statement an easing in the three- and six-month moving average year-on-year growth rates in instalment credit as a positive development.

The Bank of Namibia’s Monetary Policy Committee (MPC) met on 19 August and decided to keep interest rates unchanged after an upward adjustment at the previous bimonthly meeting. Policymakers pointed to positive developments in the local economy during the first half of 2015 on the back of robust construction activity in both the public and private sectors.

The central bank still expects the economy to expand by 5% this year from 4,5% in 2014, though is keeping an eye on several downside risks, including economic challenges in key trading partners.

The country’s consumer price index was 3,3% year on year higher during July compared to a inflation reading of 3,05% year on year in the preceding month and 3% year on year in May.

The MPC sees consumer price inflation as being contained of late, averaging only 3,4% year on year during the first six months of the year.

The central bank is currently not preoccupied with price issues, and is rather focused on private sector credit growth.
Policymakers reiterated that they remain concerned with the high growth pace in instalment credit, with private sector credit extension (PSCE) rising by an average of 16% year on year during the first half of 2015. Specifically, instalment credit expanded by an average of almost 21% year on year during the January to June period of this year, reaching N$6,3 billion by mid-year.
According to the BoN, a considerable amount of these loans are largely used to finance unproductive imported luxury goods, which places additional pressure on the country’s foreign reserves.

The import bill swelled from N$19,5 billion during the first quarter of 2015 to N$23,8 billion during the April to June period. Namibia has recorded widening trade deficits over the past four quarters. This has pushed the central bank’s reserves down to N$13 billion as of mid August.

The MPC however stresses that its vault is still holding enough money to safeguard the currency peg between the Namibia dollar and South African rand, with reserves currently equalling almost four times the value of currency in circulation.

-The Namibian



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