2006-12-12Staff Report 2 "By Mbatjiua Ngavirue WINDHOEK There seems to be no end in sight to the pain Namibian consumers are feeling after being hit with the fourth interest rate hike in a year on Friday, and with experts predicting a further increase will follow early in the new year. Bank of Namibia (BoN) Deputy Governor, Paul Hartmann, in announcing the increase on Thursday said the bank had decided to increase the bank rate by half a percentage point (50 basis points). The increase came into effect on Friday with the bank rate increasing from 8.50 percent to 9 percent. The four increases in the Bank of Namibia's repo rate - the rate at which it lends money to commercial banks - have each been quite gradual, averaging half a percentage point each. Taken together they add up to interest rates that are two percent higher at the end of the year than at the beginning of the year. People with large amounts of debts, or people with house mortgages or vehicle loans tied to the commercial bank prime-lending rate, are likely to have started feeling the pinch. When making the announcement, Hartmann likened the Namibian economy to a sick patient - the illness in this case being excessive credit - that needed to be given medicine. The patient had received some medicine, which had brought about some improvement, but the patient - according to Hartmann - still needs more medicine before being declared fully cured. He furthermore could give no indication of when the bitter medicine would end, saying only the medicine would end when the patient is healthy again. Hartmann said the four most recent increases had shown some success in moderating the demand for credit in Namibia, but done little to tame the credit binge in South Africa. The BoN said Namibian inflation had continued to rise since the beginning of this year, reaching 5.8 percent in October from 5.5 percent in September 2006. The rise in the prices of food and transport were the main factors behind the increase in the average annual inflation during October 2006. Alcoholic beverages, tobacco and other goods and services also exerted upward pressure on inflation, resulting from the increased cost of financial services. ""We do not expect the Namibian inflation rate to abate in the immediate future as more price rises are expected based on the stubborn rise in the South African producer price index (PPI),"" the bank said. The rise is expected to create further inflationary pressures for Namibia given the fact that a sizeable portion of Namibia's imports originates from South Africa. Increases in the price of both imported and South African produced goods are responsible for the increase in the PPI. The PPI grew by 10 percent during October, compared to 9 percent in the preceding month. ""The increase during October 2006 is quite significant when compared to an increase of only 4.2 percent recorded during the corresponding month of 2005,"" the BoN pointed out. The bank's Monetary Management Committee (MMC) said that from its review of recent economic policy it remained concerned about the unabated rise in inflation. Despite international oil prices slowing down, future developments were uncertain due to persistent threats of instability in some of the major oil producing countries. The BoN said that robust domestic demand, money supply growth, high net domestic credit extension, generally high fuel prices, rising food prices and the depreciating domestic currency continued to pose a major risk to the domestic inflation outlook. ""The MMC does not expect that the bank rate adjustment will have a significant impact on real economic activities, as it is mainly aimed at managing consumer demand pressure resulting from the extension of credit. ""The Bank of Namibia will continue to do everything necessary to further tame inflationary pressures in order to lessen its damaging impact on the Namibian economy,"" the BoN concluded." 2006-12-12Staff Report 2
