Windhoek-Commercial banks will now marginally reduce their interest rates on loans after the Bank of Namibia (BoN) yesterday announced a reduction of 25 basis points on the repo rate to 6.75 percent.
The central bank’s Monetary Policy Committee (MPC) took the decision to support domestic economic growth, as the reduced repo rate should lead to increased spending resulting from a relief on disposable incomes of indebted households.
Making the announcement yesterday, BoN’s Deputy Governor, Ebson Uanguta, noted that activity in the domestic economy remained weak during the first six months of the year, relative to the corresponding period of 2016. “The MPC was mindful of the lower inflation rate realised and projected for the Namibian economy, the strong fiscal consolidation drive and the improved international reserve position,” said Uanguta.
The country’s inflation rate averaged seven percent during the first six months of 2017, compared to the same period in 2016. Inflation, however, slowed from a peak of 8.2 percent in January this year to reach 5.4 percent in July. A large part of the slowdown in inflation since the beginning of the year can be attributed to lower food inflation.
The weak performance was mainly reflected in the construction, manufacturing, wholesale and retail as well as transport sectors. Uanguta, however, pointed out that there were some pockets of improvement in sectors such as mining and communication as well as livestock marketing, which provided some stimulus to the economy.
Namibia’s preliminary stock of international reserves, as at 31 July 2017, stood at N$32.7 billion, representing an increase on both a monthly and annual basis. “The increase was mainly due to repatriation of funds by financial institutions, the African Development Bank loan inflow and the repayments by the National Bank of Angola. At this level, the stock of international reserves is estimated to cover 5.5 months of imports of goods and services and thereby remains sufficient to sustain the currency peg between the Namibia Dollar and the South African Rand,” said Uanguta.
Following the currency exchange agreement with Angola, that country still owes Namibia US$204 million of which four payments of US$51 million are still outstanding. These payments are scheduled for this year in September and December and next year March and June. The two governments signed the currency exchange agreement in 2015, which allowed the Angolan Kwanza to be accepted by Namibian banks at Oshikango and the Namibia Dollar to be accepted by Angolan banks at Santa Clara. This agreement was implemented in 2015 but was subsequently suspended when Angola was unable to pay the billions owed to Namibia on time.
“For the indebted households, it (the repo rate reduction) would mean a reduction in their debt-servicing costs, and therefore a further relief on their disposal incomes. This is likely to increase spending, in general, and therefore provide some respite under current economic conditions in the country,” explained Frans Uusiku, an economist at Simonis Storm Securities.
He added that this reduction is a sign of an expansionary monetary policy. “This means that the expected increase of money supply in the economy, by lowing interest rates, is expected to boost economic activity, and therefore support domestic economic recovery. We definitely view it a necessary measure to help support the economy,” said Uusiku.
Ngoni Bopoto, Research Analyst at Namibia Equity Brokers, concurred, saying: “It is a move we expected due to the prevailing economic environment, subdued inflation outlook coupled with the fact that the South African Reserve Bank cut its rate last month. BoN’s monetary policy statement points to weak economic activity in the first half of the year with a few pockets of improvement. The rate cut is aimed at stimulating economic activity particularly in the consumer sector which lags the rest of the economy. So in a nutshell it’s generally positive for the man on the street and should aid the economic recovery process.”
He added that the Namibia Statistics Agency is due to release final 2016 National Accounts today, which will most likely reflect that last year, the economy was weaker than initially estimated.