Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Repo rate likely to remain unchanged

Home Business Repo rate likely to remain unchanged

WINDHOEK

The Bank of Namibia’s (BoN) Monetary Policy Committee (MPC) met yesterday to decide on interest rates and we expect them to leave the repo rate unchanged at 7 percent, in line with the South African Reserve Bank’s (SARB) MPC decision to leave their repo rate unchanged at 7 percent after its July 21 meeting.

The rand’s depreciation was assessed as one the biggest upside risks to South Africa’s inflation outlook during the first half of this year.
Therefore, the decision by the SARB to leave interest rates unchanged was largely due to the recent rand strength, which reduced some risks to the inflation outlook.

While inflation in Namibia accelerated to 7 percent in July as a result of surging food prices and higher administered prices we expect near-term inflationary relief on the back of a strengthening currency and slipping commodity prices, particularly Brent crude oil.
Growth in private sector credit extension has been moderating due to slower growth in credit extended to both corporates and households.

We expect this downward trend to continue on account of the tightening monetary policy cycle and more cautious lending practices, providing BoN with some leeway to stand pat for now.

The BoN was aiming to tame growth in household credit, in particular instalment credit, and ‘unproductive’ vehicle sales growth.
Furthermore, the current interest rate hiking cycle has largely been in response to the SARB’s tightening cycle, in a bid to align interest rates with that of South Africa. The weak economic backdrop in South Africa heavily influenced the SARB decision to keep interest rates unchanged.

The SARB has the dreaded task of having to contend with rising inflation in a low growth environment, which is known as “stagflation”, or the proverbial being stuck between rock and a hard place of monetary policy. The SARB noted that “the assessment of the balance of risks to the inflation outlook and the weak domestic economy provided some room to delay further tightening of the monetary policy for now”.

While it might be too soon to call an end to the current hiking cycle, our view is that we are close to the peak in interest rates in both Namibia and South Africa. This means that over the next 12 months we expect only two more 25 basis point (0.25 percent) interest rate increases, taking the repo and prime rates to 7.50 percent and 11.25 percent, respectively.

We believe that the two hikes will be in reaction to currency weakness in the event of an interest rate hike by the Federal Reserve (Fed) in the United States and South Africa’s sovereign credit rating being downgraded to sub-investment grade.

Should the Fed opt not to hike and South Africa avoids a credit ratings downgrade, we don’t expect the SARB, or BoN, to move on interest rates – inflation notwithstanding.

* Suta Kavari is an investment strategist at Capricorn Asset Management, part of the Bank Windhoek Holdings Group.