Yesterday the Monetary Policy Committee (MPC) of the Bank of Namibia announced a reduction of the repo rate by 25 basis points to 6.25%. This reduction has been hailed as some form of relief for consumers who have loans with commercial banks as this will lead to a reduction in their repayment interest rates.
The repo rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds. Ideally, a low repo rate translates into low-cost loans for the general public. When the central bank slashes its repo rate, it expects the banks to lower their interest rates charged on loans. This means the loans offered to customers have lower interest rates.
The MPC said their decision was taken to support domestic economic activity and to maintain the one-to-one link between the Namibia dollar and the South African rand. Ipumbu Shiimi, governor of the central bank, said this decision was taken following a review of global, regional and domestic economic and financial developments.
The governor however cautioned the nation about borrowing too much following a reduction in the repo rate. “Borrowing is spending your future earnings now. Whether it is enough or not don’t borrow to consume and don’t use future income now!”
At the event, Shiimi said the available indicators suggest that domestic economic activity contracted in 2019 compared to a marginally positive growth rate in 2018. The deterioration in 2019 was mainly due to declining economic activity in sectors such as mining, agriculture, manufacturing, as well as wholesale and retail trade. Activity in other sectors including transport and construction improved during 2019, relative to the corresponding period of 2018. The domestic economy is projected to improve in 2018.
Meanwhile, annual average inflation for 2019 declined to 3.7% from 4.3 % in 2018. “This is mainly on account of declining housing and transport inflation. Monthly, the overall inflation rate declined further to 2.1% in January this year, from 2.6% registered in the previous month as inflation for housing rental payments turned negative. Going forward, overall inflation is projected to average below 5% in 2020,” Shiimi said.
Annual average growth in PSCE (private sector credit extension) rose marginally to 6.8% during 2019, from 6.3% in 2018. The moderate growth in PSCE was due to a high uptake of credit by businesses in retail, real estate, financial and other service sectors. In contrast, growth in credit extended to individuals slowed in 2019 compared to the same period in 2018. He said since the previous MPC meeting, the annual growth in PSCE rose to 7.2% at the end of December 2019, from 6.4% for October 2019 as reported in the previous MPC statement.
As of 31 January 2020, the stock of international reserves stood at N$31 billion, from N$32.5 billion reported in the previous MPC statement. At this level, reserves are sufficient to protect the peg of the Namibia dollar to the rand and meet the country’s international financial obligations.
“Even if there is a slight decline in international reserves the nation should not worry much as this continues to cover 4.4 months of imports of goods and services as before. But it is important to diversify our economy and export complex things globally. Refrain from the export of similar goods to fight competition globally,” he said.
2020-02-20 08:32:18 | 4 months ago