… as BoN warns of further increases
The central bank warned that inflation, which currently stands at 6.1 percent will continue increasing gradually during the remainder of the year.
The warning was made by Bank of Namibia governor Iipumbu Shiimi earlier this week when BoN announced that it has decided to increase the repo rate by 25 basis points from 6,75 per cent to 7 per cent, which means local banks’ interest rates are also expected to increase.
Namibia’s annual inflation rate is showing an upward trend, Shiimi said as he made the announcement.
The inflation rate rose from 3.7 percent in December to 5.3 percent and 6.1 percent in January and February 2016 respectively.
“This was mainly due to increases in inflation rates for housing, water, electricity, gas and other fuels category, which carries the biggest weight of the total inflation basket in Namibia, and the transport category. Going forward, annual inflation is expected to increase gradually for the remainder of the year,” he said.
As for the repo rate increase, Shiimi said one of the decisions that led to the increase was to prevent possible cash outflows.
“With this increase in the Repo Rate, it is expected that deposit-taking institutions will also raise deposits rates by the same margin, thereby encouraging savings,” said Shiimi.
The repo rate refers to the rate at which the central bank lends money to commercial banks such as First National Bank (FNB) of Namibia, Standard Bank Namibia, Bank Windhoek and Nedbank Namibia in the event of any shortfall of funds.
The decision is normally taken during the Monetary Policy Committee’s bi-monthly meeting.
Shiimi said the decision was taken following a review of the global, regional and domestic economy, as well as the financial developments since the last MPC meeting held in February this year.
“The increase is to align interest rates with that of South Africa and hence, sustain the one-to-one link of the Namibian Dollar to the Rand,” he said.
He said the domestic economy is estimated to have registered respectable growth in 2015, slower than the previous year.
“This growth was mainly on account of the construction, wholesale and retail trade as well as public services. Going forward, growth is expected to continue to be positive, but risks remain and include the slowdown in the economies of the country’s trading partners, soft commodity prices, volatile exchange rate and the effects of the prevailing drought conditions,” said Shiimi.
Following the previous increase of the repo rate in February from 6,25 to 6,75 per cent, all commercial banks increased their prime lending rate from 10,25 to 10,50 per cent, and home loan base-rate increased from 11,25 to 11,50 per cent.
Standard Bank’s Manager of Economic and Market Research Mally Likukela warned last week that The outlook for 2016 remains uncertain and domestic spending growth is likely to remain subdued.
“The poor economic outlook is set to exacerbate worries about job security and will continue to weigh on consumer confidence,” he said at the time.
Likukela further said: “The Namibian economic slowdown will hit export-
oriented manufacturers and lead to declining industrial production.”
“The domestic economy will not fare much better in 2016. While these conditions would suggest an easing of monetary policy, which I think is really unlikely. There is a serious concern about accelerating inflation rate which is more likely going to worsen by the severe drought and weak exchange rate,” said a concerned Likukela.
Additional reporting by NAMPA