By Desie Heita
WINDHOEK – It is time to refrain from buying that luxury yoghurt and start cutting back on the weekend spending at your favourite drinking hole.
Rather talk to your bank manager about consolidating your debts and think about paying an additional N$50 on your loans or overdraft.
Iipumbu Shiimi, the Bank of Namibia governor, has for the first time in three quarters pushed up the interest rate to 5.75 percent. The reason, he said, is because Namibians are borrowing too much to buy cars and other things of no appreciating value.
Bank analysts say this could be the start of a period of high interest rates.
“While the difference may be small at the moment, any additional interest rate increase will start to really hurt people’s pockets. Now is the perfect time to rebalance your debt portfolio by paying extra on your loans,” said Daniel Motinga, the head of research at FNB Namibia.
Shiimi this week expressed “concern [over] the rapid growth in the import of vehicles, partly financed by instalment credit.” This trend, he said, has put pressure on the international reserves of the country and required monitoring. Hence the reason to increase the repo rate by 0.25 of a percentage point.
That mere 0.25 percent increase on a 20-year bond of N$500 000, for instance, means that a consumer is looking at an additional payment of N$81.60 per month or nearly N$1 000 a year.
Motinga cautioned: “We have now entered an upward rate cycle, which means we could see more interest rate increases in future. Borrowers should take steps to protect themselves from rate hikes.”
Anton Smit the executive officer of credit at Bank Windhoek says Namibia has now entered an upward cycle of interest rates and consumers need to refine their budgets to withstand the impact of the changes that come with the increase.
“Limit further borrowing and make sure you can easily cut back on spending on luxury or non-essential items. Try to pay off debt as quickly as possible, especially non-income generated debt. Consumers must learn to live within their means, while at the same time plan for any unforeseen expenses,” said Smit.
Smit also advises that it is time to pay back the small loans with the highest interest rate first and work through to the more acceptable debt, like asset finance. “Plan for next month and make sure you spend less than what you earn,” he says.
However, Motinga says it is not all doom and gloom: “The good thing is that, whenever interest rates go up, interest on your savings or investments go up too, so start putting more money away.”