Interest rate hikes needed for long-term stability – Brown

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by Edgar Brandt
Windhoek

While significant interest rate hikes have been predicted for both South Africa and Namibia in 2016, which are likely to reduce disposable income and result in a contraction of these economies in the short-term, these interventions may be needed for the long-term well-being.

This is according to the head of research at IJG Securities, Roland Brown, who feels this forecast is not necessarily a train smash as it is natural for economies to go through ups and downs.

Speaking at a business breakfast on Friday morning to discuss the outlook of the Namibian economy in 2016, Brown noted that a base case forecast for South Africa sees interest rate hikes totalling 175 basis points during the course of the year. This he said, could force the Bank of Namibia to follow suit with similar increases considering that the country imports most of its goods from South Africa and thereby imports inflation as well.

“Higher interest rates and lower government spending are needed to improve long-term economic stability for the country. Smart policy, particularly around funding developmental projects, both social and economic, will open new opportunities and new possibilities for the country,” said Brown during his presentation.

Brown also raised concerns about high levels of household debt, credit rating risks, infrastructure challenges such as housing, water and energy as well as the drought that still grips parts of the country.

Also speaking at the event, the Minister in Charge of the National Planning Commission, Tom Alweendo, noted that while Namibia will be affected by regional and global events, the overall picture is not all doom and gloom. “The economy is growing. The growth is not as high as we would like it to be,” Alweendo said. He thus called for a concerted effort to create employment, to reduce poverty and to become more competitive.

“The private sector also needs to take responsibility. We have to find ways to sing from the same handbook … The last thing we want to do is to be too negative about what is happening,” Alweendo added.

Brown furthermore cautioned on the reasonable probability that two or more international credit rating agencies may downgrade South Africa in 2016. Fitch Ratings downgraded South Africa in December 2015 and S&P Ratings downgraded SA’s outlook to negative from stable. “This was before President Zuma’s finance minister shuffle, which would have greatly increased the risk of a ratings downgrade.”

Commenting on the outlook for the global economy, Brown said the world’s economy looks increasingly fragile.

“China, US and European growth outlooks are increasingly clouded with downside risk and a hard landing in China is possible, but unlikely. Also, interest rate hikes in the US are likely to remain on hold in the foreseeable future,” said Brown.

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