WINDHOEK – The Bank of Namibia’s Monetary Policy Committee (MPC) last week decided to leave the repo rate at 6.0 percent to support domestic economic activities while monitoring the effects of recent monetary policy decisions. The MPC also raised alarm bells about households largely financing unproductive imported luxury goods, thereby putting additional pressure on the international reserves of the country.
“Domestic growth prospects continued to be encouraging during the first eight months of 2014, while inflation declined. Risks however remain, including strong demand in household credit, especially when used to finance luxury goods,” said Bank of Namibia (BoN) Governor, Ipumbu Shiimi, in the bank’s latest monetary policy statement.
The Bank of Namibia’s available data show that the domestic economy improved during the first eight months of the year, driven mainly by construction, wholesale and retail, diamond mining and manufacturing. In contrast, activities in the agriculture sector, as well as uranium and zinc production, performed poorly.
According to Namene Kalili, Senior Researcher at FNB Namibia, FNB Namibia expected rates to remain unchanged.
He added: “As much as we are in a rate hiking cycle, the hiking will be gradual in order to nurse economic growth, which is not high enough to get us to Vision 2030. Supply side data currently highlight internal vulnerabilities, particularly on the export side. The mining, manufacturing and tourism sectors continue to under-perform and thus generate less export revenue for the country.”
He concluded by adding that the BoN continued to rein in on consumer spending and therefore this was not the time to be spending, especially if the expenditure is debt financed.
The BoN governor made multiple references to increased vehicle imports, which were eroding the country’s foreign reserves and do not necessarily add to the country’s productive capacity.
Meanwhile, BoN noted that Namibia’s trade deficit widened further as a result of the higher import bill.
“These imports consisted mainly of capital goods, vehicles and other consumer goods. The Bank of Namibia remains concerned about the importat of unproductive goods, especially passenger vehicles and luxury goods, which continue to exert pressure on the international reserves of the country. Despite this pressure, the international reserves remain sufficient to meet the country’s foreign obligations,” noted Shiimi.