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Friday 19 July 2019
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Economic think-tank cautions against keeping interest rates flat

By Staff Reporter

A local economic think-tank has disagreed with the central bank monetary policy committee’s decision to keep interest rates at 6.75% arguing that this will kill the struggling economy from gathering momentum.
Analysts at Simonis Storm (SS) are of the view that based on the stagnant macro-economic factors; the central bank should consider cutting interest rates by 25 basis points (bps) in the 2nd half of the year to give impetus to the dire economic environment.
They (SS) consequently revised their interest rate forecast to a 25bps cut to 6.50% in 2019 from their previous best-case scenario of 25bps hike. Meanwhile outside the domestic economy, the Fed dots point to a 25bps interest rate cut in 2019 while Bloomberg consensus is pricing in a 92.5% probability of a 25bps rate cut by September 2019.
Indileni Nanghonga, an economist at Simonis Storm said the mood around interest rates has changed from a hawkish to a dovish stance, with interest rate cuts in Australia and India and an     unchanged stance by the ECB.
“Most developed markets (Japan, ECB) are considering the start of Quantitative Easing (QE) to stimulate economic growth. The ANC also wants to explore QE measures to make funds available for development purposes. “The FRA curve is pricing in a likelihood of a 25bps interest rate cut in SA. The unexpected severe 1Q2019 economic contraction and disappointing manufacturing PMI in SA contributes to the interest rates cut possibility by SARB,” she said.

Low inflation, more reason for rate cuts
Simonis Storm took note that inflation remains relatively low especially in the food category despite the drought situation.
The firm expects transport inflation to continue to trend up in June due to the increase in fuel prices. “With the current level of inflation, stable liquidity position, fund inflows through regulation 28, contracting economic growth and a strong 5.6 months of import cover, Bank of Namibia should consider cutting interest rates to support economic activities,” Nanghonga said.
According to the Namibian Statistics Agency (NSA), for May 2019, overall inflation increased to 4.1% year-on-year compared to 3.9% recorded in the prior year.
“Monthly, however, we observed a deflation of 0.1% in May 2019 compared to 0.4% inflation seen in the prior month. Inflation in Zone 1 (northern part of the country) remains lower at 3.3% y-o-y in May 2019, compared to Zone 2 (Khomas region) and Zone 3 (//Karas, Erongo, Hardap, and Omaheke regions), which recorded an inflation rate of 4.1% and 5.1% y-o-y, respectively. We reiterate our inflation forecast of 4.8% for 2019,” said Nanghonga.

Car sales pull a surprise
Meanwhile the National Association of Automobile Manufacturers South Africa (NAAMSA) released Namibia’s new vehicle sales numbers for May 2019.
Vehicle sales rose by 13.9% month-on-month to 1 055 units, following a decline of 1.1% seen in April 2019. On an annual basis, vehicle sales surprised to the upside recording an increase of 17.1% to 1 055 units, recording two consecutive months of growth.
The surge in total vehicle sales for May was boosted by a monthly increase in heavy commercial, light commercial, passenger and extra heavy vehicles of 66.7%, 15.7%, 10.3% and 73.1% to 10 units, 472 units, 512 units and 45 units, respectively in May 2019.
Vehicles channelled through dealers have increased by 9.4% m-o-m to 838 units, which is 33% below the historic average (9 years) units of 1 256. This is an indication that the local dealers remain under strain. Moreover, vehicles channelled through rental increased by 35.0% m-o-m to 216 units, the highest increase over the last 10 months.
“We attribute the increase in rental cars to the current tourism season. As explained in our report “The True State of the Vehicle Sector _ April 2019”, we treat this with caution as this is a seasonal effect and doesn’t provide a true reflection of the vehicle industry,” said Nanghonga.
She added that given that cars and fuel prices have an intrinsic relationship, the recent fuel price increases do not make it attractive for car sales. The above, coupled with contracting instalment credit and the depressed consumer environment will continue to put pressure on the new vehicle sales numbers, Nanghonga also warned.
“Globally, vehicle sales are being challenged by trade tension and uncertainty around Brexit as many car manufacturers (EU and UK) have scaled down on production. Similarly, the same trend can be observed in South Africa with new vehicle sales continuing to disappoint, recording a -5.7% year-on-year to 40 506 units in May 2019. Our view is that Namibia will follow the same trend, therefore, we reiterate our forecast of an annual decline in total vehicle sales of 4.5% to 11 500,” she elaborated.




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