Hard-pressed Consumers to Borrow More
Namibian consumers should brace for another rate hike this week as the central bank battles to tone down inflationary pressures.
Namibian economist, Martin Mwinga, said that underlying pressures are still piling pressure on inflation, pushing it upwards.
Mwinga told The Southern Times that the Bank of Namibia was likely to hike rates next week.
The central bank has raised its key repo rate by a cumulative 2.5 percent points to 9.5 percent over the past 14 months.
Commercial banks followed suit and adjusted prime lending rates to 13.75 percent.
This has, however, failed to slow down consumer spending or borrowing, Mwinga said.
He added that rising prices of crude and food are stoking up inflationary pressures.
Inflation, which has been rising since January 2006, averaging 6.1 percent in the first quarter of 2007 against 4 percent during the corresponding period in 2006, has breached the top of its 3 percent to 6 percent target for three months in a row.
South Africa Reserve Bank (SARB) governor, Tito Mboweni, has already set the tone for another rate hike this week when he said that interest rates are unlikely to come down and “are more likely to go up.”
Mboweni said that the SARB was concerned about household debt which has scaled a record 76 percent of disposable income, whilst service costs are also rising and should be a problem “should interest rates go higher.”
“South Africa might see lots of insolvencies.
We will see lots of repossession of cars, houses,” Mboweni said.
After the August hike, Mwinga said the bank was likely to put the rates on hold.
“The rate might not go up in October unless something dramatic happens. Naturally, they (BoN) would wait to watch the effect of the hikes so far,” Mwinga said.
He said that rising food and oil prices are the major drivers to inflation. Analysts note that volatile and ever-rising international oil prices are also impacting negatively against developing countries’ efforts to fight poverty.
Analysts also note that wrestling with volatile international oil prices had become one of the biggest challenges facing the developing world.
Mwinga said rising inflation has raised the debt burdens of most households in Namibia. He added that most commercial banks in the country had cut down on credit extension.
This, Mwinga said, could lead to consumers flocking to micro-lenders to borrow money at punishing rates.
“Banks are already cutting on credit extension citing bad debts and when they reduce lending, consumers will resort to microlenders… income levels are not rising as fast as the prices are rising,” Mwinga said.
BoN said two months ago that fears of drought in the country and the rest of southern Africa have also been fuelling the prices of cereals and grain.
Government says that Namibia imports are close to 80 percent of its cereal and grain requirements. In April, BoN said that international prices for maize and wheat on an annual basis had gone up by 54 percent and 52 percent respectively. – Southern Times