BoN raises repo rate to encourage saving

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Windhoek

After a review of the global, regional and domestic economies, the Bank of Namibia’s (BoN) Monetary Policy Committee (MPC) yesterday announced an increase in the Repo rate of 25 basis points.

The Repo rate is the rate at which the central bank of a country lends money to commercial banks.

The decision to raise the Repo rate from 7% from 6.75% was taken to align domestic interest rates with that of South Africa and to sustain the one-to-one peg of the Namibia Dollar to the South African Rand.

“The decision was necessary to prevent possible capital outflows, which could put pressure on the country’s international reserves. With this increase in the Repo rate, it is expected that deposit-taking institutions will also raise deposit rates by the same margin, thereby encouraging savings,” BoN Governor Ipumbu Shiimi said.

Shiimi noted that domestic demand in the annual growth of private sector credit extension (PSCE) slowed, on average, over the first two months of 2016, when compared to the corresponding months in 2015.

The annual growth in PSCE averaged 13.2 percent in 2016, lower than 16.2 percent over the same period in 2015.

“The lower growth in PSCE primarily resulted from reduced growth in credit advanced to the corporate sector in the form of mortgage, overdraft and installment credit.

“The slower growth in the PSCE was, however, offset by higher growth in credit extended to the household sector, which rose to 13.1 percent on average during the first two months of 2016, from 12.3 percent during the same period in 2015,” Shiimi explained.

He also noted that the domestic inflation rate is showing an upward trend as it rose from 3.7 percent in December 2015 to 5.3 percent and 6.1 percent in January and February, respectively.

This was mainly due to increases in inflation rates for housing, water, electricity, gas and other fuels category, which carries the biggest weight of the total inflation basket in the country, and the transport category.

Looking ahead, Shiimi expects inflation to gradually increase for the remainder of the year.

‘The domestic economy is estimated to have registered respectable growth in 2015, although slower than the previous year. This growth was mainly on account of the construction, wholesale and retail trade, as well as public services.

“Going forward, growth is expected to continue to be positive, but risks remain and include the slowdown in economies of the country’s trading partners, soft commodity prices, volatile exchange rate and the effects of the prevailing drought conditions,” Shiimi added.

Meanwhile, global growth slowed in 2015 compared to 2014, mainly due to slow growth in emerging market economies.

“With the exception of India, growth in most key emerging market economies, such as China and South Africa, slowed in 2015 compared to the previous year… These economies are expected to slowdown further in 2016,” Shiimi said.

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